We recently conducted an office survey to see how our brokers viewed primary markets. Each broker was given a list of U.S. cities, and had to decide if the cities were primary, secondary or tertiary markets. Although subjective, this is the criterion that large financial institutions and REIT base their investment decisions on.
Cities like L.A., Denver and Miami are considered primary markets, whereas Nashville and Charlotte are considered secondary. Examples of tertiary cities are Huntsville and Knoxville. The results were unanimous for most primary and tertiary markets; however, there was some debate on the secondary markets.
Distinguishing between primary and tertiary CRE markets isn’t too difficult. Much of this is based on the overall economic picture of the city, including its central business district, MSA, employment and population growth and overall demand for CRE sectors. I personally believe, for example, that primary markets have to have professional sports teams.
Knoxville and Huntsville are considered by most to be tertiary. Though they are both undergoing population and employment growth, they are self-contained, rather than being part of a larger MSA.
Defining secondary markets can be more difficult, and certainly more subjective. Cities like Birmingham and Louisville appear at first glance to be secondary. However, institutions and REIT view these cities as tertiary. Consequently, these markets don’t receive much investment from these capital sources.
Nashville doesn’t have the attention of the REIT market, although we are large enough to make institutional investors and insurance companies want to invest here. This is important because the capital from these institutions provides a long-term commitment to Nashville. It also relieves some of the pressure of local banks. The culmination of the two allows for greater community investment.
Institutions are attracted to cities with sustainable job growth. Other factors such as quality of life, housing prices and availability of healthcare also come into play. In this economy, job growth is first of mind when it comes to institutional investment, and Nashville is a top market for sustainable job growth.
ManpowerGroup recently ranked Nashville as fifth among all metropolitan areas in the nation for employment. Our economic diversity makes this possible, with a strong educational, healthcare, IT and construction base. Our Chamber of Commerce and state Economic Development Council have recruited several large corporate relocations including Nissan of North America and IQT, to name a few.
Just a few years ago, Nashville was known as a tertiary market. Outside of Atlanta and strong Florida cities like Miami and Orlando, most southeastern cities are tertiary. Throughout the past two decades, the southeast has seen booming growth. However, only Nashville has graduated from tertiary to secondary.
Many say Nashville is poised to become the next Atlanta. At times it certainly feels this way. Our continued employment growth and our geographic position, along with local and state incentives, continue to attract new businesses.
Will I be writing about Nashville as a Primary market one day? I sure hope so.