Investors Flock To Secondary Cities But For How Long

Investors are flocking to secondary and tertiary markets, playing on a trend that’s been picking up steam for the last several decades and lurched into high gear as the pandemic drove activity away from dense urban cores.

A new investor outlook from Marcus & Millichap shows that while transaction activity dropped dramatically in the second quarter of 2020, it gradually recovered and was almost back to normal on a macro level by Q4. But while total CRE deal count was only down 5 to 10% years-over-year, those numbers don’t tell the whole story, according to John Chang, senior vice president of research services at M&M.

Property type and geographic factors accounted for vast disparities in sales volume, Chang said, with full service hotel sales, for example, logging a 61% decrease compared to 2019. Meanwhile, industrial warehouse facilities priced at between $2.5 and $10 million were up by more than 25% in Q4, and generally speaking sales of properties under $20 million recovered faster than those over that threshold.

While multifamily and warehouse properties gained traction more quickly, Chang says, “reigniting sales activity for hotels, senior housing, urban office and shopping centers has been slow.”