In recent years, the commercial real estate (CRE) market has shifted, and secondary cities—those not historically considered primary metropolitan power centers—have become critical centers of investment and growth. While traditionally dominant cities like New York, Los Angeles, and Chicago remain front and center, smaller, secondary cities are attracting increasing attention from developers, investors, and firms looking for new frontiers. Dov Hertz, one of the most prominent commercial real estate developers, gives insight into why these secondary cities are becoming major players in business.
The Shift to Secondary Cities
Secondary cities, long just beyond main metropolitan areas, are experiencing a surge in commercial real estate activity. The secondary cities offer lower costs of operations, emerging talent pools, and quality-of-life amenities that attract businesses and residents. With corporations and individuals searching for alternatives to high-cost main cities, the secondary cities are answering the call.
“Over the last few years, we’ve seen a significant shift towards secondary cities, where costs are lower, and the quality of life is often better,” says Dov Hertz. “These cities offer a unique opportunity for businesses to expand without the burdens of sky-high real estate prices, all while maintaining access to a growing workforce.”
Secondary cities are not only cheaper but also provide greater flexibility for companies looking for quick growth. Less populated with more land area to build on, these cities are seeing the creation of both office and industrial properties, from technology centers to distribution facilities. With affordability and accessibility, they are increasingly appealing to companies that wish to expand without the limitations of bigger markets.
The Effect of Remote Work and E-Commerce Growth
The rise of remote work and the booming e-commerce industry have also fueled secondary city growth. As companies increasingly embrace flexible work arrangements, they are no longer tethered to main cities with high-cost operating environments. Remote workers are now able to live in small cities and still work with teams across the nation or globe. This change is generating greater demand for office space (as companies adapt to hybrid work arrangements) and residential in secondary cities.
The COVID-19 pandemic hastened the shift to remote work, which has been a boon for secondary cities,” Hertz says. “Companies are no longer limited to large metropolises, and they’re finding the advantages of being in cities where they can find employees, lower their expenses, and stay competitive.”.
E-commerce growth has also driven demand for secondary city commercial property. With demand for last-mile delivery centers and distribution facilities continuing to rise, secondary cities are becoming leading destinations for logistics and industrial space. These cities have affordable land, and access to major transportation corridors positions them well to meet the needs of e-commerce companies.
“Secondary cities are strategically positioned for e-commerce growth,” Hertz states. “With transportation infrastructure continuing to improve and prices remaining low, these cities present a strategic location for businesses to operate their supply chains with convenience. It’s a win-win situation for both developers and business companies.”
Quality of Life and Talent Attraction
Among the greatest drawcards of secondary cities is that they have a very high quality of life. Less expensive living, shorter trips to work, and less traffic are factors that make these cities highly desirable for both employees and businesses. With cities becoming more congested and costly, individuals increasingly seek the benefits of smaller, more livable cities without giving up career potential.
“Woohoo, companies are finally realizing that talent doesn’t live in big cities,” says Hertz. “Many employees want lower-cost, desirable places to reside, and secondary cities offer a great work-life balance. That makes them more attractive all the time for companies who need to attract and retain top talent.”
With improved work-life balance, secondary cities are experiencing population growth, particularly among young families and professionals. This migration is giving businesses a talent pool of potential employees who want to locate outside of major cities. Secondary cities also offer such things as parks, more affordable housing, and a less hectic pace of life that attract people from larger cities who desire a more balanced lifestyle.
Real Estate Development in Secondary Cities
The growing demand for secondary city commercial property is fueling development across the board. Office space, particularly flexible and co-working offices, remains highly sought after as firms transition to new hybrid work practices. Retail buildings are being transformed into mixed-use developments with apartments and parks. The industrial sector, as mentioned, is being led by the online shopping boom, with distribution centers and warehouses now commonplace in most secondary cities.
Increasingly, developers are seeing the potential in secondary cities and realizing there are opportunities that are yet untapped,” Hertz says. “Whether they’re office buildings, logistics facilities, or mixed-use projects, these cities offer a huge number of investment opportunities. They are the commercial real estate future.”
Government incentives and urban renewal efforts are also supporting developers. Governments in secondary cities are eager for investment and offering tax breaks and other incentives to developers who introduce commercial real estate projects to their jurisdictions. The result of government incentives and developer attention is the explosive growth of secondary cities as a destination for commercial real estate.
The Future of Secondary Cities in CR
In the future, the future for secondary cities in commercial real estate is bright. As businesses embrace remote working, e-commerce rises, and livable and affordable cities gain popularity, secondary cities will feature prominently in commercial real estate.
The secondary city trend is not going away,” Dov Hertz says. “These cities possess that unique combination of affordability, talent attraction, and access to growing industries. The commercial real estate world is evolving, and secondary cities are poised to lead the way.”
Dov Hertz also appeared on a podcast: