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.
"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."
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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