As a cycle matures and caprates compress, investors typically head to secondary and eventertiary markets in search of yield. However, investors tend toreturn to core markets during a downturn, after prices drop and theyield potential is brighter. In the long run, although secondarymarkets experience growth, they still see more risk during adownturn than core markets.

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"Any time there is a dip, investors go back to the coremarkets," Steve Jacobs, CEO of Ten-XCommercial, tells GlobeSt.com. "When there is a dip,investors can get a better deal in Los Angeles or San Francisco.Core has always been more desirable, but as those get tooexpensive, they go to the next bucket, which is the sunbelt andthen secondary and tertiary cities. Investors would rather buy anasset outside of Boston than outside of Detroit."

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The rush to secondary markets is natural, for investors as wellas companies, both of which are looking for a deal in the midst ofhigh prices. "When core markets get too expensive, it is naturalfor people to move to Las Vegas because it is cheaper," saysJacobs. "The same with businesses. If a business can get out of anexpensive market and move to a secondary market, they will and theydo."

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Jacobs uses the example of Las Vegas, which was hit very hardduring the last recession. However, while the market has recovered,he says that it isn't fundamentally different that it was in thelast run-up. "If you look at Las Vegas, for example, it has thishuge run-up and then a collapse," he says. "It wasn't only inresidential but also in desirability. As we have recovered, themarket place has also recovered, but businesses are questioning ifthey want to be in Las Vegas because it is more desirable foremployees and clients to be in a primary market. So, I do thinkthere is risk in secondary and tertiary markets during a dip."

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Another sign that core markets remain a better long-run bet isthat large tech companies, like Amazon and Yahoo, are choosing toexpand in core markets. "If there is a dip and an investor islooking to invest, they are going to look at the core markets firstbecause it is a safe place to be," says Jacobs. "It is a safeinvestment. The minute you go to the secondary markets, even if itis a good market with good dynamics, but those are the markets tobe hit hardest when there is a dip."

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Kelsi Maree Borland

Kelsi Maree Borland is a freelance journalist and magazine writer based in Los Angeles, California. For more than 5 years, she has extensively reported on the commercial real estate industry, covering major deals across all commercial asset classes, investment strategy and capital markets trends, market commentary, economic trends and new technologies disrupting and revolutionizing the industry. Her work appears daily on GlobeSt.com and regularly in Real Estate Forum Magazine. As a magazine writer, she covers lifestyle and travel trends. Her work has appeared in Angeleno, Los Angeles Magazine, Travel and Leisure and more.