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Multifamily Minute Reader Reflections: What Markets Look Best for Investment Today?
We surveyed our 45,000 readers to see where they're looking for their next apartment building investments.
There has been a lot of discussion about places to invest — and not invest — in today's multifamily landscape. With rent growth decelerating across the country, markets that were hot last year may not look as attractive to the average investor today.
Instead of asking about several dozen specific markets, last week's survey asked about the type and size of market that appear the most attractive today.
Survey Results
So, which type of market was the most appealing? See the results below.
Market Type | Percent of Respondents |
|---|---|
Large, primary markets | 24% |
Mid-sized, secondary markets | 61% |
Smaller, tertiary markets | 15% |
A clear majority of our subscribers responded that they favor mid-sized markets. What exactly is a secondary market, though?
It depends on who you ask, unhelpfully. Most multifamily experts, investors, and analysts would likely agree that cities like Indianapolis, Las Vegas, and Orlando could all be classified as secondary. They're large enough metros in their own right, but far smaller than so-called primary markets like New York, Los Angeles, or Miami.
Still, there's a bit more confusion when growing cities like Nashville, Raleigh, or Austin are brought into the equation. I'd argue that all of these are secondary markets, but some would consider them tertiary. Here's a good guide from more than a decade ago, if you're curious to dig a little deeper into market terminology.
Why Secondary Markets Are Hot
So, why all the hype for secondary markets?
One reason is pure happenstance: Most Sun Belt markets are secondary markets, and many investors are still very keen on the region for multifamily properties — for good reason. Although a handful of markets (and a handful of submarkets within other metros) could face oversupply issues, the region's rapid population growth is a strong sign of future multifamily returns.
Another reason is tied to the accessibility of pricing in secondary markets. Most are considerably cheaper than primary markets (with some assets in select markets, like Austin or Orlando, being notable exceptions), which means it's easier for investors to acquire and get sufficient financing for projects.
A third is that many secondary markets are showing pretty strong rent growth. Consider Indianapolis, for example. This city of around 1 million people currently has the fastest-growing rents nationwide, according to Yardi Matrix's May multifamily report. While some other secondary markets — Phoenix and Vegas, for example — have experienced rent decreases over the past year, these are certainly exceptions and not the rule.
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Our Previous Survey
Missed last week's results? We previously asked and talked about future interest rate hikes. It looks like there may be a couple more increases coming this year — find out the latest information.