Why More Investors Are Looking at “Edge Markets” Instead of Primary Cities
Primary Cities Are Losing Their Edge
For decades, major U.S. metros like New York, San Francisco, and Los Angeles have been the go-to destinations for institutional real estate investment. These “primary markets” were seen as safe bets, offering strong job growth, population density, and consistent demand.
But in 2025, the story has changed.
Rising interest rates, soaring cap rate compression, higher barriers to entry, and shifting population dynamics have made it increasingly difficult for investors to achieve strong yields in these legacy metros. In fact:
Cap rates in primary markets have fallen to sub-4% levels in many asset classes, leaving little room for error or upside.
Multifamily rent growth has slowed in major urban cores, with some cities like San Francisco and Washington, D.C. experiencing stagnation or even declines in net absorption.
Population migration trends show a clear shift: Americans are moving away from high-cost urban centers in favor of more affordable, mid-sized metros.
According to U-Haul’s 2024 Growth Index, nine of the top ten U.S. growth cities were in secondary or tertiary markets, not major metros.
Chasing Yield in a Compressed Environment
The pressure to deploy capital remains. But the traditional “buy in Tier 1, hold forever” strategy is no longer producing the returns investors need. This has created a frustrating paradox: the places with the most capital inflow are often the least favorable for value creation.
Institutional money is also more agile than ever. With data, remote tools, and operational networks in place, investors are realizing they no longer need a Manhattan ZIP code to access opportunity.
Instead, they’re turning to the “edge.”
Edge markets, also called emerging, secondary, or tertiary markets, are defined by their proximity to primary cities, growth momentum, and affordability. These cities aren’t rural or remote. They’re well-positioned, infrastructure-connected metros seeing outsized population and job growth, but without the bloated pricing.
Examples include:
Novi, Michigan (outside Detroit) — seeing hotel RevPAR indices 40%+ above comps
Syracuse, New York — benefiting from semiconductor investment and infrastructure spending
Cleveland, Ohio — leading the nation in affordability and multifamily occupancy (96%+ in some neighborhoods)
Boise, Idaho and Greenville, South Carolina — experiencing 2-3x the national average in population growth
Edge Markets Offer Growth, Yield, and Strategic Advantage
Investors seeking yield, risk-adjusted returns, and long-term upside are refocusing their strategies. Here’s why edge markets are proving more compelling:
1. Better Entry Pricing and Cap Rates
Cap rates in edge markets can be 150-250 bps higher than in core markets, even for stabilized assets. This means stronger cash flow from day one and more flexibility on exit.
2. Strong Population and Job Growth
Markets like Raleigh, Columbus, and Tulsa are seeing net migration rates 2-5x higher than national averages. These cities attract remote workers, young families, and businesses seeking lower costs.
3. Less Competition, More Upside
With fewer institutional players and less oversaturation, investors can build operating moats and unlock value through repositioning, strategic partnerships, and community engagement.
4. Access to Federal and State Incentives
Edge markets are often located in Opportunity Zones or are eligible for state-specific economic development programs. Investors can layer in tax credits, grants, and public-private partnerships to de-risk and amplify returns.
5. Long-Term Strategic Positioning
Edge markets are where infrastructure dollars are going. The $1.2 trillion Infrastructure Investment and Jobs Act is disproportionately benefiting these regions, paving the way for long-term demand and resilience.
Go Where the Growth Is
Real estate is a game of timing, location, and leverage. In 2025, edge markets offer a rare trifecta; growth potential, strong yield, and room to operate. While primary markets still have their place, investors chasing alpha in today’s environment are finding more compelling stories, and returns, on the edge.
Sources:
CBRE U.S. Real Estate Market Outlook 2025
U-Haul Growth Index 2024
Moody’s Analytics CRE Data, Q1 2025
U.S. Census Bureau 2024 Population Estimates
Marcus & Millichap Research Reports
NAIOP 2025 Market Forecast
Infrastructure Investment and Jobs Act Summary, whitehouse.gov