Corporate Tenants: Pay Attention to Growing Demand in Tertiary Markets

In this article, you'll learn:

• Why tertiary markets are gaining popularity for businesses and residents.
• The benefits of relocating to these affordable, high-potential regions.
• Top emerging tertiary markets poised for long-term success.
• How the shift from primary markets is impacting corporate real estate decisions.

A flight to quality has been taking place in recent years, as individuals, families, and businesses alike seek out cities where they can achieve a better work-life balance without breaking the bank.

Companies are increasingly looking for premium amenities and a safe environment for their employees, which can be difficult to find in primary markets that are already plagued by high living costs. Tertiary markets offer a compelling alternative, offering the perfect balance of affordability and quality, making them an increasingly popular choice for those seeking a higher quality of life.

And as we continue to watch the evolution of where CRE demand lies, migrations away from major primary business hubs are only becoming more common. Keeping an eye on promising regions will tell tenants where the future hotspots are evolving to be. At the same time, it is critical to be hyperaware of which cities are regions are dying, marked by high regulations, low demand, and increasing landlord defaults.

So read on to learn about the new push for tertiary markets, why it’s happening, and which regions are gaining the most popularity.

Why is the Rise of Tertiary Markets Happening?

Let’s spell it out.

Primary and secondary markets are overwhelmingly large metropolitan areas. Due to their reputation, they are well-connected, expensive, and crowded. Unfortunately, it was these very reasons that spurred a migration away from these regions beginning with the pandemic.

In primary markets, providing both safety and comfort on top of premium amenities is simply not affordable. Because for instance, Manhattan's nicest office buildings cost up to $300 per square foot.

When the WFH revolution, work became largely decentralized and offset the demand for offices, especially in overly crowded expensive cities. Given the freedom from an office’s radius in a major metropolitan region, people took advantage of the ability to keep their jobs yet move their home base to a more affordable state or city.

The “flight to quality,” began as businesses and individuals alike found that that they can get a higher quality life in areas of lower overhead. Thus, the hidden gem cities or tertiary markets have landed in the spotlight, reinvigorated by new demand.

Modern Migration

This comes at the same time of the rise of live-work-play communities. Young professionals want to surround themselves with the best environment possible. And given the freedom to move, they’re willing to do so to find it.

Wise businesses are paying attention to where this new demand is evolving to be. And as companies position themselves where the strong talent pools are migrating to, it creates a self-fulfilling cycle in which these markets are getting stronger. Because at the end of the day businesses are also benefitting from the same allure.

Not only are they tapping into new talent pools, but they’re becoming more appealing for talent acquisition. Quality offices increase the likelihood businesses can recruit and maintain great talent. At the same time, they're also slashing overhead expenses in rent, taxes, and nearly everything else. This builds a new potential for long-term CRE success in a rocky nationwide office market.

Where (and What Tertiary Markets)

Tertiary markets are defined by populations ranging from 100,000 to 200,000 residents and are located within several hours from a major metropolitan hub.

Capital of Wyoming and tertiary market, Cheyenne is experiencing newfound demand. 

Recent studies conducted by Graceada Partners suggest that tertiary markets will see a surge in growth in the long run, as they become increasingly popular and contribute to a more dispersed economy. Just as Austin and Atlanta exploded in the last few years, new cities are set to take over the spotlight.

And while the Sunbelt was the star of the last corporate migration, new data suggests that The Heartland, Cactus Belt, and Western Interior regions are gaining momentum. These emerging third city markets are becoming more competitive and attractive to residents, even as Sunbelt cities continue to flourish.

The new reports point to the ten top tertiary markets, and they may surprise you.

• Cheyenne, WY
• Rapid City, SD
• Redding, CA
• Columbia, MO
• Lake Havasu City, AZ
• Idaho Falls, ID
• LaCrosse, WI
• Pueblo, CO
• Bakersfield, CA
• Yakima, WA

These cities potentially pose more potential for long term success when selecting a location like quickly booming (and burning) cities like Atlanta.

Since the overall demand for office space nationwide demand has taken a hit, it’s prudent to look where there is promise. Tertiary markets represent a new potential for long-term success because they are currently “well positioned to grow and attract more residents, potentially more than other American regions like New England or the Deep South,“ according to GlobeSt. 

As such, these regions are now piquing the interest of investors across the country. And businesses would be wise to follow the money trail because when it comes to their leases, it’s time to consider whether relocating is worth it (if you haven’t already.)

Is it best to sign (or resign) a long-term lease in a dying market? Or should your organization look to fresher regions where they can benefit from low rent costs while maintaining higher quality facilities?

Not to mention that property owners in burgeoning regions have more potential for success as well. And when landlords, especially in major traditional metros like NYC and Los Angeles, are defaulting at rapid rates, tenants need to consider how wise it is to bind themselves for another 5 or 10+ years. Disruption of service due to a landlord defaulting is now a very real possibility for corporate tenants. This is even more so in primary markets where landlords run the risk of lower profit margins due to expensive costs and strict regulations. If they can’t stay afloat, the tenants become the ones in the hot seat.

So, to avoid this possibility, tenants and investors alike are now eyeing regions that are low cost and high potential for long-term success.

Is a Relocation to a Tertiary Market in Your Future? 

In conclusion, the surge in popularity for commercial real estate in tertiary markets is not just a fleeting trend. It is a manifestation of the flight to quality taking place in recent years, where individuals, families, and businesses are seeking cities where they can achieve a better work-life balance without breaking the bank.

Tertiary markets are increasingly becoming a compelling alternative to primary markets, offering a perfect balance of affordability and quality. As we continue to witness the evolution of where CRE demand lies, it is critical to keep an eye on promising regions that are gaining momentum, especially those located in the Heartland, Cactus Belt, and Western Interior regions, which are becoming more competitive and well-positioned to grow and attract more residents. It is prudent for businesses to consider these emerging third city markets as potential long-term solutions, especially with the disruptions caused by the pandemic and the rise of the remote workforce. By following the money trail, tenants and investors alike can make informed decisions that can result in lower overhead expenses and higher quality facilities, ultimately leading to long-term CRE success.

In the face of all these shifts and changes in the CRE landscape, it's more important than ever to have an experienced and knowledgeable partner on your side. That's where True Tenant Reps™ come in.

With over 3 decades of experience in the industry, the experts at iOptimize Realty® are uniquely equipped to help businesses navigate the complexities of the current market and find the right location to suit their needs.

As True Tenant Reps™, we work exclusively for tenants, ensuring that their best interests are always front and center throughout the leasing process. From start to finish, we are there to guide our clients and help them make informed decisions that will set them up for long-term success. So, if you're looking to lease commercial real estate in a tertiary market or anywhere else, reach out to us today to learn how we can help.

If you want to learn more about whether you should stay or go, read: 

Should You Renew or Relocate Your CRE in the Recession?

Top 4 Cities to Relocate Your Business

The Worst 3 Cities for Your Commercial Real Estate in 2023