Due to changing market conditions, more and more investors are embracing secondary commercial real estate markets.

But what are the existing market conditions? And how are they influencing investors today to make the switch to these markets to expand their commercial real estate portfolio?

Understand current market conditions.

Commercial real estate has secondary markets characterized by:

• The potential for stable national economic trends
• Improving buyers’ risk-taking capacity.
• A huge difference in returns between the primary and secondary markets

These factors are prompting investors to look to the secondary markets to improve their returns.

Deciphering the Secondary Real Estate Markets

As the name suggests, these markets take second place in the commercial real estate investment hierarchy.

But secondary markets bring unique opportunities and risks.

The assumptions behind the coastal commercial real estate investment strategy may not hold true for lenders that are operating in areas with less liquidity. That means one thing: Secondary markets may not be the most ideal business when done on a smaller scale.

The point is that the difference between the secondary and primary markets extends far beyond a simple count of commercial real estate in each area. And if someone enters the world of such markets for the first time, he will not be able to understand the different market participants, the different properties and the links with the real economy.

Speaking of their problems, these markets present unique hurdles related to property acquisition, investor dispositions, and availability of funds. (In general, investors may find it difficult to find the right financing opportunities to start buying activities in the secondary markets.)

Long-term prospects in secondary markets

Most investors are drawn towards these commercial real estate markets.

Why?

For the most part, investors are motivated by the prospect of appreciation in a long-term secondary market.

It is because some markets give huge profits, as long as they meet some criteria.

For example, some markets may have a high concentration of skilled workers coupled with an exceptional track record of innovation. These markets are at the top of the list of lucrative markets. Aside from that, some supply-constrained markets can also provide high returns.

But just because a skilled workforce is driving long-term growth initiatives in any market doesn’t necessarily mean it’s less volatile. From the time of investment to asset selection, these markets also have multiple factors that govern their liquidity models.

Like any other market, a secondary market will also have its own unique risks. Investors who want to expand their portfolio by speculating in these markets have to take into account a variety of aspects.

First of all, they will have to consider the fact that the global economy is expanding and has an impact on the economies of different countries. Due to their synergistic effects, the world economy is moving away from financial crises at a steady pace.

Successfully analyzing these factors, investors must integrate their analysis to decipher how and when these outside influencers will change a market’s performance patterns and risk-return tradeoffs.

Successfully analyzing the current economic landscape and its impact on secondary markets will propel policymakers, investors, and lenders in the right direction.