For 43 years, Emerging Trends in Real Estate has been one of the most widely read and highly regarded trends and forecast reports in the real estate industry.
In the most recent report, Emerging Trends in Real Estate 2022, international professional services firm PwC and the Urban Land Institute (ULI) jointly provide an outlook on the real estate industry, including property sectors, development trends, and metropolitan areas.
Traditionally, primary markets or gateway cities have attracted a significant amount of investor interest, while secondary markets were generally dismissed.
However, as Emerging Trends notes, the pandemic has upset some long-time assumptions of property markets. In fact, for over 10 years, primary market gateway cities have been losing their popularity while secondary markets rank among the best places for overall real estate prospects.
In this article, we’ll list Emerging Trend’s best primary and secondary markets for real estate investment, and discuss some factors to consider when investing in primary gateway and smaller secondary markets.
Key takeaways
- Real estate markets are generally classified as primary, secondary, and tertiary.
- Primary real estate markets are also known as gateway or establishment markets have large population bases and GDP.
- Chicago, Los Angeles, New York, and San Francisco are four primary real estate markets.
- Secondary real estate markets are home to rapidly growing populations and job markets.
- Nashville, Raleigh/Durham, Phoenix, and Austin are secondary real estate markets that are also ranked as having the best real estate prospects in the country.
- Both primary and secondary real estate markets may offer opportunities for real estate investors.
- Factors to consider when choosing a real estate market for investment include job and population growth, home prices, supply and demand, and potential return on investment.
How real estate markets are classified
Real estate markets are generally classified into three type of markets:
- Primary
- Secondary
- Tertiary
There isn’t a standard definition in the real estate industry or list of criteria that make one market primary and another secondary. But as a rule of thumb, investors often look at factors such as demographics, population and job growth, and amenities when ranking real estate markets as primary, secondary, or tertiary.
How a real estate market is classified may also influence an investor’s expectation for market fundamentals, property prices, supply and demand, potential returns, and overall investment strategy.
What is a primary real estate market?
Primary real estate markets – also known as gateway markets or establishment markets – are best known for being the nation’s economic leaders, with large population bases and an oversized contribution to the GDP of the U.S.
Although primary real estate markets generally grow more slowly than secondary real estate markets, they may still offer significant opportunities for real estate investors.
Characteristics of a primary real estate market
Primary real estate markets are characterized by a variety of factors, including population, GDP, and high housing prices.
The average population size of a primary market is about 3.1 million people, with large primary real estate markets such as Los Angeles and New York City home to 18.7 million residents and 8.4 million residents respectively.
While primary real estate markets have roughly the same population as secondary markets, primary markets produce 44% more economic output. Primary real estate markets produce a combined GDP of over $5.3 trillion, compared to a total GDP of about $3.6 trillion for all secondary markets.
Primary markets are also home to home to some of the most innovative and educated workforces in the country, and also some of the most expensive housing prices. According to Zillow, the typical value of a middle price tier home is $312,728 (through October 31, 2021.) By comparison, the typical value of a home in San Francisco is $1,526,099, and $696,083 in Boston.
Top 10 primary real estate markets
| City | Overall real estate prospects |
| Seattle | 9 |
| Boston | 10 |
| Washington, DC - Northern VA | 14 |
| Inland Empire | 17 |
| Los Angeles | 19 |
| Silicon Valley/San Jose | 26 |
| Chicago | 28 |
| Oakland/East Bay | 31 |
| New York - Manhattan | 42 |
| San Francisco | 45 |
Primary real estate market subgroups
Emerging Trends in Real Estate 2022 categorizes primary real estate markets into 3 different subgroups:
- Multitalented Producers such as Chicago, Los Angeles, San Jose, and Seattle are larger, more diverse, and more economically varied than other primary real estate markets. These cities have a significant employment base of STEM (science, technology, engineering, and mathematics) workers, and tend to be more productive based on per capita GDP. Although real estate prices are high, these subgroups still attract a substantial amount of investment dollars.
- Knowledge and Innovation Centers like Boston, Manhattan, San Francisco, and Washington, DC are home to the most educated workforces in the country. Due in part to high real estate prices and crowded cities, these markets witnessed a substantial amount of out-migration during the pandemic. However, many of these markets appear to be recovering as the economy reopens.
- Major Market-Adjacent subgroup is composed of cities surrounding high-cost metro areas like Los Angeles, San Francisco, and New York City. Real estate markets such as the Inland Empire and Northern New Jersey benefited from out-migration during the pandemic, although the long-term impact on the local real estate markets remains to be seen.
What is a secondary real estate market?
Secondary real estate markets – also known as magnet markets – are in-migration destinations for both people and businesses. Population and job markets are growing faster than the U.S. average, with higher proportions of millennials and Gen-Xers, helping to drive the demand for single-family rental homes.
As Emerging Trends notes, secondary real estate markets are also the preferred cities for builders and real estate investors. In fact, secondary real estate markets claim 8 of the top 10 markets with the best overall real estate prospects.
Characteristics of a secondary real estate market
Key characteristics of secondary real estate markets include strong population and job growth, large increases in rent prices, with home prices that are still relatively affordable.
The average population size of a secondary real estate market is about 3.3 million people, about the same average as in primary markets. Some of the largest secondary real estate markets, such as the Dallas/Fort Worth and Phoenix metropolitan areas, are home to 7.6 million residents and 4.8 million residents respectively.
Rapid population growth in secondary real estate markets is responsible for a significant amount of real estate development and job growth. In fact, secondary real estate markets like Atlanta, Dallas/Fort Worth, and Phoenix have all seen population growth of more than 5% over the past 3 years.
Rent growth of single family rental (SFR) homes in 3 secondary real estate markets is the highest in the nation. According to the Q3 2021 Single-Family Investment Trends Report from Arbor, SFR rent growth in Miami, Phoenix, and Las Vegas climbed by 21.4%, 19.2%, and 15.4% respectively, between August 2020 and August 2021. By comparison, annual rent growth in the primary real estate markets of Boston and Chicago was just 1.5% and 1.4%, respectively.
Even though the demand for single-family rental property is exceedingly strong in secondary real estate markets, home prices are still relatively affordable. According to Zillow, the typical value of a middle price tier home in Nashville is $376,729, while the value of a middle price tier home in Raleigh/Durham and Phoenix is $390,571 and $383,924, respectively (as of October 31, 2021).
Top 10 secondary real estate markets
| City | Overall real estate prospects |
| Nashville | 1 |
| Raleigh/Durham | 2 |
| Phoenix | 3 |
| Austin | 4 |
| Tampa/St. Petersburg | 5 |
| Charlotte | 6 |
| Dallas/Fort Worth | 7 |
| Atlanta | 8 |
| Sal Lake City | 11 |
| Denver | 12 |
Secondary real estate market subgroups
Secondary real estate markets are categorized into 3 different subgroups by Emerging Trends:
- Super Sun Belt cities such as Atlanta, Dallas/Fort Worth, and Phoenix have large and diverse economies that attract a wide range of businesses. While cities across the country saw employment decline during the pandemic, Sun Belt real estate markets are predicted to collectively regain nearly all of their lost jobs by the end of this year. Business-friendly governments and a better quality of life are two reasons why the growth of secondary real estate markets in the Sun Belt is so strong.
- 18-Hour Cities including Charlotte, Denver, and Salt Lake City feature active downtowns and urban-like suburban nodes. Although housing prices are not as low as there once were, secondary real estate markets like these are still benefiting from in-migration, in part from people relocating from more expensive primary real estate markets.
- Supernova cities such as Austin, Nashville, and Raleigh/Durham are on a tear, according to Emerging Trends. Although relatively small in size, cities like these have above-average levels of white-collar employment and economic diversity, helping to make secondary real estate markets the focus of developers and rental property investors.
Which is the better choice?
There are potential opportunities for real estate investors everywhere, both in urban primary markets and more suburban secondary markets. In fact, primary and secondary real estate markets were evenly ranked as the real estate markets to watch in 2022 by the 2,130 real estate practitioners interviewed and surveyed by ULI and PwC.
When analyzing any real estate market for potential investment, factors for an investor to consider include affordability of home prices, supply and demand in the marketplace, population and job growth rates, and the potential return on investment.
