It’s increasingly difficult for commercial real estate investors to earn strong returns in big cities such as New York, Los Angeles and San Francisco. That’s because commercial real estate values in these markets have hit all-time highs while cap rates are as tight as they’ve ever been. Because of that, investors are increasingly turning to so-called secondary markets for opportunities.
And that’s good news for the Midwest, which is home to many of the secondary markets that are most attractive to investors.
New York-based Trepp, which provides a database securitized mortgages, recently ranked the top 20 secondary markets for commercial real estate investors. Not surprisingly, the Midwest had a solid showing on this list.
The Nashville-Davidson-Murfreesboro-Franklin market of Tennesse ranked third on Trepp’s list. Trepp cited the region’s low unemployment rate of 2.32 percent and its solid population growth rate of 1.83 percent as two key factors for the area’s high ranking. The commercial real estate occupancy rate of 89.12 percent here helped, too.
Trepp also pointed to the low delinquency rate in Nashville. The company said that only 1 percent of all CMBS debt backed by Nashville properties was delinquent as of July of 2018.
The only secondary markets to rank ahead of the Nashville region were Austion-Round in Texas and the Orlando-Kissimmee-Sanford market of Florida.
Columbus, Ohio, also ranked high, claiming the eighth spot in Trepp’s list. This market boasts a commercial real estate occupancy rate of 91.56 percent, an unemployment rate of 3.47 percent and a population growth rate of 1.55 percent.
Minneapolis-St. Paul-Blooming, Minnesota, ranked ninth. This region has a commercial real estate occupancy rate of 91.67 percent, an unemployment rate of 2.31 percent and a population growth rate of 1.22 percent.
The last four spots on the list were also filled by Midwest cities. The Indianapolis-Carmel-Anderson region of Indiana claimed the 17th spot, while Kansas City, Missouri, came in at 18th. The St. Louis, Missour, market was 19th, while the Cincinnati market claimed the 20th spot.