The multifamily investment landscape is shifting rapidly. As high prices and fierce competition squeeze returns in primary markets, investors are increasingly turning their attention to secondary markets—smaller cities and suburban areas that offer compelling opportunities for growth, yield, and long-term value. Let's break down the key trends shaping these secondary markets in 2025 and what they mean for investors seeking to maximize cash flow and portfolio resilience.
Why Secondary Markets Are Stealing the Spotlight
Affordability and Entry Costs
Primary markets like New York, San Francisco, and Los Angeles have seen property prices soar, pushing many investors out of contention. In contrast, secondary markets offer multifamily assets at a fraction of the cost, lowering barriers to entry and enabling more attractive risk-adjusted returns. This affordability is driving a notable migration of capital, with over half of all multifamily acquisitions now taking place in secondary and tertiary markets—a significant jump from a decade ago.
Remote Work and Migration Patterns
The remote and hybrid work revolution has fundamentally changed where people want to live. Freed from the need to be near major employment centers, renters are flocking to cities that offer more space, lower living costs, and a higher quality of life. This migration is fueling demand for rental housing in secondary markets, making them prime targets for multifamily investment.
Government Incentives and Infrastructure Investments
Local governments are rolling out the red carpet for both residents and businesses, investing heavily in infrastructure, public transportation, and smart city initiatives. Tax incentives and grants are also attracting employers to these regions, which in turn drives job creation and further boosts housing demand.
Performance Trends: Vacancy, Rent Growth, and Yields
Decreasing Vacancy Rates
Secondary and tertiary markets have experienced significant drops in vacancy rates over the past decade. For example, vacancy rates in secondary markets have fallen from 6.6% to 3.8%, reflecting robust and consistent demand for rental housing. This stability is giving investors greater confidence in the long-term viability of these markets.
Rent Growth Outpacing Primary Markets
While rent growth in major cities has slowed, many secondary markets are seeing above-average increases. In 2019, the top-performing secondary and tertiary markets posted rent growth of 5.4% or more—well above the national average. This trend has continued into 2025, particularly in regions benefiting from population influx and job creation, such as the Sun Belt and Mountain West.
Higher Yields and Cap Rates
Investors are finding it increasingly difficult to achieve attractive yields in primary markets, where cap rates have compressed to around 4.1%. By contrast, secondary and tertiary markets are offering cap rates of 5.3% and 7.0%, respectively, providing a much-needed buffer against rising interest rates and market volatility. These higher yields are a major draw for both institutional and individual investors seeking stable cash flow.
Regional Hotspots and Investment Strategies
Sun Belt and Mountain West Surge
Markets in the Sun Belt—such as Huntsville, Alabama, and Colorado Springs, Colorado—are outperforming thanks to strong job growth, population gains, and high unit absorption rates. These regions are absorbing new supply rapidly, keeping vacancy rates in check and supporting steady rent growth.
Acquisition-Rehab Opportunities
With new construction slowing due to higher costs and tighter lending standards, investors are pivoting toward acquisition-rehabilitation deals. Upgrading existing assets in secondary markets is proving to be a lucrative strategy, as demand for modern amenities rises and competition for new builds intensifies.
Tech and Industry Hubs
Cities with a growing tech presence or strong industrial bases—think Denver, Portland, and select Midwest metros—are attracting both residents and employers. These markets are benefiting from economic diversification, which supports rental demand and reduces risk for multifamily investors.
Risks and Considerations
Supply and Demand Imbalances
While many secondary markets are thriving, some are grappling with oversupply, leading to rent corrections and higher vacancy rates. It's crucial for investors to analyze local fundamentals—such as job growth, migration trends, and absorption rates—before deploying capital.
Interest Rate Volatility
Elevated and volatile interest rates are exerting downward pressure on property values across the board. Secondary markets, with their higher cap rates, offer a cushion, but investors should remain vigilant and stress-test their underwriting assumptions.
The Bottom Line for Investors
Secondary markets are no longer just an alternative—they've become the main stage for multifamily investment. Their combination of affordability, strong fundamentals, and higher yields makes them increasingly attractive as primary markets become saturated and yield-compressed. As we move further into 2025, savvy investors who conduct thorough market research and maintain disciplined underwriting standards will find abundant opportunities in these emerging secondary markets.
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