Explore how economic growth is reshaping secondary city property markets, offering strategic opportunities for investors and executives.
Secondary cities are increasingly emerging as prime targets for real estate investment worldwide. These markets provide a mix of low cost, growth, and diversified economic drivers that both residential and commercial investors would want to invest in compared to primary cities.
The economic growth in terms of infrastructure, diversification of the industries and government support policies is one of the determiners of growth in the property market and thus secondary cities have become a strategic target of long-term value creation. The growth of property value in European and North American secondary cities is estimated to be 68% per year over the last five years, which is higher than most of the primary cities (Knight Frank, 2024).
The article focuses on how economic trends can affect the property markets in the secondary city.
Table of Contents
1. Economic Development as a Catalyst for Secondary City Growth
1.1 Infrastructure Investment Driving Real Estate Demand
1.2 Job Creation and Industry Diversification
1.3 Government Policies and Incentives
2. Investment and Development Opportunities in Secondary Cities
2.1 Residential Real Estate: Affordability and Yield Potential
2.2 Commercial and Industrial Real Estate Expansion
2.3 Mixed-Use and Regeneration Projects
3. Risks and Strategic Considerations for Secondary City Markets
3.1 Market Liquidity and Investment Exit Challenges
3.2 Economic Volatility and Demographic Shifts
3.3 Regulatory and Planning Challenges
Conclusion
1. Economic Development as a Catalyst for Secondary City Growth
1.1 Infrastructure Investment Driving Real Estate Demand
The direct cause of the growth of the property market in secondary cities is infrastructure investment. The bases of increased real estate demand are provided through the efficient transportation networks, the presence of modern industrial zones and urban revitalization efforts, which provide a stronger connection to the urban area and its accessibility. Secondary cities that invest in specific infrastructures tend to appreciate their properties at a faster pace and attract investor confidence.
An excellent case in point is Berlin, Germany, where secondary districts like Neukoelln and Lichtenberg have had an increase in property prices of 12% due to infrastructure (Savills, 2023). Residents and commercial tenants have been attracted to the area due to the introduction of upgraded lines of transit, renewed industrial belts, and enhanced amenities for people.
To the investors, infrastructure investments are a sign of the possibilities of long-term growth and increasing liquidity. By fitting timelines of projects to these trends, urban planners and developers can enjoy the benefits of timely completion of infrastructure projects, which will guarantee their competitive edge and increased returns on investments.
1.2 Job Creation and Industry Diversification
The diversification of the economy directly affects the property market of the secondary cities. The cities that grow beyond conventional industries draw a talented workforce, an increase in the inflow of population and a boost in demand for both commercial and residential property. Investors and developers in the secondary markets would find these emerging markets more appealing due to job creation in these new areas, including the technological sector, healthcare, and the creative sector.
A good case study is of Manchester, UK. When switching to a more tech, media, and creativity-focused economy, leading to a more manufacturing-based one, office rental yields rose by 7% across the secondary districts of Manchester in 2024. Likewise, the suburbs of the U.S. secondary cities such as Austin, saw an increase in population of 3.5% in one year, which led to an increase in residential demand as well as the development of residential housing and mixed-use communities.
Investment-wise, diversification in the industry would lessen dependence on one area of the economy to eliminate the risks that come with cyclical downturns. The urban planners and property developers ought to observe active cities that have secondary strategies in job creation, especially those that encourage tendencies towards tech centres or creative economies. The investors are able to enjoy both the short-run rental returns and the long-run capital gains through matching the project with the growth of the population that is driven by the industry.
1.3 Government Policies and Incentives
The attractiveness of the secondary city property markets is largely dependent on government policies. The incentives can be tax incentives, zoning reforms, urban regeneration grants and fast-granted permits to stimulate the investment and growth in the property market. Critical interaction with policymakers enables both the investors and the developers to utilize their opportunities as they reduce the risks of regulations.
The city of Leipzig, Germany, has shown the effects of policy-oriented development. Residential investment in 2022-2024 is projected to grow by 9% due to incentives on regeneration and zoning changes. Through encouraging mixed-use developments, affordable developments, and urban regeneration plans, local governments raised the stability of the markets and investor confidence.
To C-suite executives, it is critical to comprehend the policy environment. Cities with strong tax incentives, lenient zoning laws allow greater returns on capital or less time on the project and lower development risk. Investors can determine the best secondary markets through evaluating the municipal strategies that focus on urbanization, diversification of the economy, and involvement of the private sector. Policy trend-informed decision-making will guarantee optimal project selection and performance in a portfolio.
2. Investment and Development Opportunities in Secondary Cities
2.1 Residential Real Estate: Affordability and Yield Potential
The residential real estate in the secondary cities has a strong value proposition. The price of property is much lower, the yield of rentals is better, and the barriers to market entry are less complicated, compared to the primary cities. These are what attract investors who are after a stable income as well as long-term capital gain.
As an illustration, in the U.S., secondary cities such as Raleigh and Nashville have a yield on rent ranging between 5-6% as opposed to 3-4% in major cities. Low cost and increased population inflows boost occupancy and minimise the chances of vacancy. Moreover, secondary cities attract millennials and young professionals who prefer bigger and more affordable places to reside, which generates a long-term demand.
Investment-wise, the residential markets of the secondary cities have a two-fold payoff; acquisition prices are lower and yield will be higher in terms of cash flows and portfolio diversification. The property developers can take advantage of these trends and create developments that will appeal to the shifting demographic tastes, including the urban millennials, remote workers, and middle-income families, thus optimizing the occupancy and long-term investment returns.
2.2 Commercial and Industrial Real Estate Expansion
The secondary cities are becoming more popular in the commercial and industrial investment as the cost is favorable, logistic demand is increasing, and the cities are located near the regional markets. The high-growth prospects also exist in light industrial facilities, warehouses, coworking areas, and distribution centers, in particular, during the e-commerce growth and reshoring trends.
In 2023, German secondary cities like Dortmund and Essen have become logistics centres, attracting a total of over 1.2 billion euros of industrial investment. Foreign investors are focusing on such secondary markets to take advantage of cheaper land prices, quicker permitting and the growing need to have regional distribution centers. The growth of coworking centers within smaller European cities also represents the change of office occupancy trends in favor of flexible working and contributing to the economic development of the city.
In the case of developers of property, industrial and commercial property in the secondary cities is diversifying and has high potential for ROI. Knowing cities where industrial areas are growing or where the government is providing logistics projects allows strategic location of assets to take advantage of regional growth and demand peaks.
2.3 Mixed-Use and Regeneration Projects
Secondary urban landscapes are changing as mixed-use and urban regeneration projects are undertaken. By turning currently unused spaces into residential, commercial, and recreational spaces, communities become lively and sustainable through urban development and leading to an increase in the value of the property in the long term.
The example of successful regeneration is Porto, Portugal. The old industrial estates were turned into mixed-use development, and the investment in the mixed-use development was estimated to be 800 million euros by the private investors. The residential apartments, office areas, retail stores, and community facilities are combined into one project structure, attracting various audiences and building strong urban ecosystems.
To C-suite executives and developers, mixed-use projects offer them a chance to tap into several sources of revenue and increase the appeal of the city. Through regeneration incentives, involvement of the local stakeholders and incorporation of new modern design ideas, investors will be able to attain both social impact and financial returns. The secondary cities are especially appealing to mixed-use development because there is a low cost of acquisition, quicker permitting and the need to be integrated environments of living and working.
3. Risks and Strategic Considerations for Secondary City Markets
3.1 Market Liquidity and Investment Exit Challenges
Secondary city property markets can experience reduced volume of transactions, which will impact the liquidity and exit strategies. Secondary markets may experience longer sales cycles and smaller pools of buyers as compared to primary cities, which can affect portfolio turnover and capital recycling.
It has been found that sales cycles in some U.S. midwestern cities are 20-30% longer than those in primary city counterparts, especially for large commercial or industrial properties. Among the investors, it requires extended investment periods and strategies of asset disposition. Diversification of the portfolios in terms of assets and geography is essential in the management of liquidity risks as well as stability in the returns.
Secondary cities that have better economic fundamentals and increasing demand should also be monitored by developers and investors, as such markets are capable of turning into more liquidity in the long term. The long-term returns are sustainable in the investment of the secondary city through strategic patience backed by an in-depth analysis of the market.
3.2 Economic Volatility and Demographic Shifts
Reliance on a single industry or demographic trend exposes secondary city property markets to volatility. Economic downturns or population shifts can significantly impact rental demand, occupancy rates, and property valuations.
Detroit, U.S., offers a cautionary example. Property values declined sharply during manufacturing downturns, but recent diversification into technology and healthcare sectors is stabilizing the market and revitalizing real estate demand. Similarly, demographic shifts—such as aging populations or youth migration—can alter residential and commercial needs, requiring adaptive development strategies.
Investors and developers must conduct rigorous demographic and industry analyses before committing capital. Identifying cities with resilient economies, population growth, and diversified industry bases reduces risk and supports long-term portfolio stability.
3.3 Regulatory and Planning Challenges
Local laws, allowance of time and opposition of the community pose more hazards in the secondary city development. The regulatory delays may affect the project schedule, expenses, and ROI, and the inadequate stakeholder involvement may cause both reputation and operational issues.
In France, secondary cities like Lille require extended approval timelines for commercial developments, affecting project profitability and cash flow planning. Early engagement with policymakers, urban planners, and local communities is essential for streamlining approvals, anticipating challenges, and ensuring compliance.
In France, minor cities such as Lille have a long approval period when a commercial development is to be made, which has an impact on the profitability of the project and the cash flow forecasting. Timely interaction with policymakers, urban planners, and the local communities is necessary in facilitating approvals, projecting challenges and compliance.
Regulatory environments are a vital aspect of investment strategy to C-suite executives. Risks are minimized through proactive planning, awareness of policies and strategic partnerships with local authorities, which lead to the increased ease of execution of the project and overall index of investment.
Conclusion
The secondary city property markets are very lucrative to strategic investors, developers and city planners. The demand is promoted by the economic development that results in infrastructure investment, diversification of industries and favorable government policies that promote sustainable urban development.
Residential, commercial, and mixed-use development will provide diversified investments to invest in, and market liquidity, economic volatility, and regulatory issues will be taken into account to guarantee sound decision-making.
To maximize long-term value, executives and investors require the use of data-driven approaches, the early involvement in the work with local stakeholders, and the diversification of portfolios to reduce risks. Through the opportunities in emerging city trends, the stakeholders are able to gain a competitive edge and healthy returns in the dynamic global real estate environment.
Discover the latest trends and insights—explore the Business Insight Journal for up-to-date strategies and industry breakthroughs!
