Secondary markets building a unique investment landscape

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

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

Understand current market conditions.

Commercial real estate has secondary markets that are characterized by:

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

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

Deciphering the secondary real estate markets

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

But secondary markets bring unique opportunities and risks.

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

The thing is, the difference between the secondary and primary markets extends well 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 the availability of funds. (In general, investors may have difficulty finding the right funding opportunities to start buying activities in secondary markets.)

Long-term prospects in secondary markets

Most of the investors are driven towards these commercial real estate markets.

Why?

For the most part, investors are motivated by the appreciation prospects of a secondary market over the long term.

It’s because some markets give big profits, as long as you 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. Other than that, some supply-restricted 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 any 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 consider a variety of issues.

First of all, they will need 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.

In successfully analyzing these factors, investors must integrate their analysis to figure out how and when these external influencers will change a market’s performance patterns and risk-return trade-offs.

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