Pictured: Cheyenne, Wyoming

Large metropolitan cities (think New York, Chicago and L.A.) are still magnets for investment in real estate. But changes resulting from hybrid and working remote agreements are driving populations into secondary and tertiary markets. The question here is, what will be the next growth areas, especially among these smaller metro areas?

In its recently released whitepaper, “The Emergent Value of Third City Markets,” California real estate private equity firm Graceada Partners identified and ranked tertiary markets representing strong potential for real estate investment. Topping the list was Cheyenne, WY, followed by Rapid City, SD; Redding, CA; Columbia, MO and Lake Havasu, AZ rounding out the top five.

Third-city markets – TCMs – are defined as tertiary cities with a population between 100,000 and 200,000 people. These cities and towns are a short plane ride or a several hours drive to a major urban core. In finding the undervalued TCMs, Graceada Partners examined U.S. Census data, AARP liveability statistics and CoStar metrics. The top 20 TCM cities were selected and ranked based on these benchmark aggregations.

“More and more, growing tertiary markets are catching the interest of investors as a way to strategically diversify their investments,” said Ryan Swehla, co-CEO of Graceada Partners, in a news release about the company’s whitepaper.

In addition to changes in the workforce, other issues impacting the migration include affordability and perceived quality of life. A lack of multifamily affordability in secondary markets, combined with industrial growth in the TCMs, makes these areas more appealing.

“People are looking for cities with relatively lower rent or mortgage payments, where they can cultivate a better work/life balance,” the whitepaper said. Years after the pandemic, “Americans are still rethinking where they want to reside as more employers create or make permanent work from home,” according to the whitepaper.

Because of a higher level of affordability and increased quality of life, the TCMs mentioned in the whitepaper are likely to provide both a popular place to live, as well as a target destination for real estate investment, development and growth.

The whitepaper used as an example, Pueblo, CO, which was ranked eighth on the TCM list. A company based in Denver could tap into Pueblo’s population for its workforce. “Companies in traditional office settings will be able to expand their employment pool,” the whitepaper explained. “They will have a hiring advantage over those that require their workers to be in the office five days a week.”