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2 Oct 2023

Reimagining Commercial Real Estate



Category: Investing 101, Multifamily, Self-Storage Tags: remote work, Secondary markets, WFH

Reimagining CRE | Secondary Markets, Remote Work, & Investment Trends

The landscape of commercial real estate is in a constant state of flux, influenced by a myriad of factors such as economic trends, workforce dynamics, and evolving consumer habits. The volatile economic environment has affected both markets and submarkets throughout the country. Recently, the industry has been profoundly impacted by the remote workforce, with talk of the Return to Office (RTO) movement also flying around. These changes have not only challenged traditional gateway cities but have also brought secondary cities to the forefront as attractive destinations for investor capital.


The Draw to Secondary Markets

Commercial real estate transaction volume reached a historic high in 2021 and then dropped in Q2 2022 and 2023; according to RCA, it’s not anticipated to rebound until the end of 2024. So where should people be looking to find the most yield?


Secondary markets present compelling investment prospects, particularly under certain conditions. Even when primary markets are experiencing subdued economic conditions, submarkets can outshine them by offering more affordability. Secondary markets tend to be less overvalued than their primary counterparts, which can result in more attractive returns on investment.


Additionally, secondary markets boast abundant growth opportunities as a growing number of individuals relocate to suburban areas, a phenomenon often referred to as the “urban exodus.”


However, this does not mean that all submarkets are performing better than markets or vice versa at this time. Be diligent in researching a location and always weigh the investment risk. Primary markets can also serve as a great reference point for growth metrics and trends. Investors can get an idea about what’s happening on a larger scale and can make more informed decisions.


The Suburban Migration | Impact on Urban Markets

As major markets’ cost of living indexes continue to rise, more Americans are opting to move to more affordable submarkets, usually in the suburbs. According to a recent survey by Homebay, the most prevalent 2023 moving trends included a quarter of Americans shifting from urban to suburban areas, while 31% of rural inhabitants relocated to suburban regions. Interestingly, if financial constraints were not a factor, 40% of Americans expressed a preference for living in a city. This has led to a substantial change within urban markets throughout the nation. The affordability of urban homes and the persisting trend of remote work will continue to reshape the urban commercial real estate market.


The Homebay survey also found that in 2022, Florida emerged as the top destination for people relocating. Following closely, Texas ranked as the second most favored destination among Americans on the move, with North Carolina securing the third spot. California was the state from which people moved the most, closely followed by New York and Illinois.


Fastest Growing Secondary Markets

Source: Homebay and CoStar Group


  • Osceola County:  There are approximately 1,400 apartments in total, and nearly 1,700 new units are in progress, according to Costar Group. Once all these projects are completed, there will be a significant increase in the current housing supply, with a growth of 120.6%.
  • Doral: Money Magazine has recognized Doral as one of the top 50 places to reside in the United States. Doral, situated within Miami-Dade County, is experiencing rapid expansion and is among the fastest-growing regions in Miami.



6 out of 15 of the fastest-growing U.S. cities are in Texas. 


  • Georgetown-Leander: Georgetown-Leander is currently experiencing extraordinary growth in terms of population and subsequent demand for housing. This has resulted into one of the highest quarters for positive net absorption in the submarket’s history.
  • Buda-Kyle: The apartment market in the Buda-Kyle area has seen positive effects due to the ongoing trend of both newcomers and existing residents moving to the region in pursuit of better affordability and more living space. Specifically, the City of Kyle saw an increase of over 5,600 new residents between mid-2021 and mid-2022, ranking fourth in terms of the highest population growth among all cities in the Austin metropolitan area, according to Costar Group. In terms of percentages, Kyle’s population expanded by nearly 11% during this period, while Buda experienced a growth of approximately 3.0%.


North Carolina

  • Iredell County (Mooresville): Mooresville, situated just outside of Charlotte, has witnessed a significant surge in new inhabitants during the past 10 years, and it now holds the title of the fastest-growing city in the entire state. According to GOBankingRates, the city’s population has grown by 43.24% over the past eight years.
  • Cabarrus County: The Charlotte metro area’s population is steadily spreading into suburban areas, increasing multifamily housing options in Cabarrus County. While this part of the metro has historically been predominantly single-family homes, it has experienced a significant growth of nearly 18% in multifamily housing stock over the past two years, with an additional 300 units currently in construction.


Markets like Florida, Texas, and North Carolina are much more affordable when compared to states like New York and California, particularly in areas beyond major urban centers. Additionally, Florida, Texas, and North Carolina and their submarkets offer attractive choices for individuals working remotely or seeking opportunities in the technology sector. According to Indeed, the states have several metropolitan technology hubs, the number of IT jobs continuously expands, and there is exceptionally competitive pay for technology positions.


This persisting trend has the potential to make a lasting impact on CRE and where companies decide to put down roots in an effort to meet customers where they live.


Remote Work | Impact on the Economy and CRE

With a notable percentage of the workforce no longer bound to a fixed work location, more people have the liberty to select their preferred place of residence. This shift has generated increased interest in residential properties in suburban and smaller town settings, positively impacting smaller markets.


The rise of remote work has changed not only how businesses approach work arrangements and where individuals want to live but also the entirety of the office sector. Companies have been forced to reevaluate their office space needs, with several opting for smaller offices. However, the need for in-­person collaboration and connection remains despite this rise in remote work. Several office layouts are undergoing significant transformations, emphasizing collaborative zones, conference rooms, and designated environments for employee interaction and creativity. This need for face-to-face interactions, minus the lengthy commutes, has driven the demand for suburban office spaces nationwide, performing much better than urban office locations.


Urban office demand has plummeted nationwide, but there has been a rise in repurposing of office buildings. Numerous office owners and developers are repurposing underutilized office facilities into mixed-use settings. This transformation involves converting segments of office structures into residential units, co-working spaces, retail establishments, or other various amenities. By embracing the trajectory of remote work, the real estate sector can flourish in this contemporary era characterized by flexible work setups, thereby supporting the achievements of remote workers and businesses in equal measure.


Assessing the Real Impact of the Return to Office Movement

The RTO Movement has been the talk of the town in recent months; however, the likelihood of going back to how it was before the pandemic is relatively low. The momentum behind this push to bring employees back into the office five days a week or on a hybrid schedule is not as robust as it may appear. For every company advocating for a return to office, another is embracing flexible work arrangements, allowing their staff to choose where they work. Furthermore, many businesses that initially implemented strict return-to-office policies have since reversed their decision or struggled to enforce them effectively.


According to CNBC, the latest data from July’s WFH Research reveals that 59% of full-time workers have returned to working exclusively on-site, 29% are now operating in a hybrid work model, and 12% continue to work entirely remotely. However, it’s worth noting that offices are currently operating at only 50% capacity compared to their pre-pandemic levels.


With office vacancy rates in the U.S. hitting 18%, a figure not seen since the savings and loan crisis in the 1990s, it’s evident that the struggles of the office market extend beyond the impact of the pandemic. Remote work, which has become mainstream, is likely here to stay. Companies are discovering that it can be a cost-effective option and allows them to tap into a broader talent pool, making it a competitive advantage in the evolving world of work.


Office is not the only asset class being affected by the rise in remote work. Retail and multifamily have also experienced some significant changes. With more people working remotely, foot traffic in traditional brick-and-mortar retail spaces has decreased. This has led to challenges for physical retailers, including reduced sales and the need to adapt to changing consumer preferences. Remote work has also influenced tenant preferences, with some individuals and families seeking larger living spaces to accommodate home offices. This has driven demand for larger multifamily units and homes.


Rise of Secondary Cities Popularity

In the past, investors often directed their investments toward the well-known gateway cities in the U.S. These cities were favored due to their familiarity and the perceived advantage of having robust institutional demand, which provided superior liquidity, especially during economic downturns. However, the investment landscape has evolved, especially with the increasing emphasis on the industrial and multifamily sectors.


This shift underscores the changing dynamics in real estate investment strategies, where emerging markets are capturing the attention of astute investors.


The question of whether secondary cities will overtake gateway cities as destinations for investor capital depends on various factors and trends within the global economy and real estate markets. For example, regarding industrial real estate, a recent GlobeSt. article reports that several experts believe that secondary cities are ready for the spotlight. Historically, regions like the Inland Empire, Miami, and the NJ corridor have been the primary focal points for the industrial asset class. However, emerging secondary markets are gaining traction and drawing fresh investments. This shift is due to factors such as cost considerations, capacity availability, and evolving production patterns, which are spurring increased interest in markets that were once considered less attractive.


Resilient Asset Classes in Economic Downturns

CRE markets vary in their resilience during market downturns and recoveries, with different asset classes exhibiting varying characteristics.

  • Multifamily: Multifamily properties tend to be relatively resilient during economic downturns. People need housing, and renting becomes much more common during tough times than homeownership.
  • Self-Storage: Self-storage properties have also proven to be resilient. As more people downsize or relocate, the demand for storage rises as well.


The adaptability of multifamily and self-storage properties to changing economic conditions applies to both markets and submarkets. Economic downturns impact the entire nation in some way, shape, or form, but demand for these assets remains steady even during times of economic volatility or changing consumer trends such as the urban exodus or the rise of remote work.



In this transformative era for CRE, adaptability, and innovation will be paramount for industry players to navigate the changing landscape successfully. The emergence of secondary markets will tremendously impact the growing trends of remote work, the office sector, and the urban exodus, which will demand strategic foresight and flexibility for all those involved. As the industry continues to evolve, those who can embrace change and innovation stand to thrive in this new era of commercial real estate.

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