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REPORT: Secondary Apartment Markets Outperform Larger Ones

Richmond, Virginia

Since the beginning of the coronavirus pandemic, many secondary U.S. apartment markets have seen stronger revenue growth and investor interest than the national apartment market as a whole, according to a new report by Berkadia.

The report details the relative strength of 25 markets it calls "Zoomtowns," for their attractiveness to remote workers. Average annual revenue growth for the Zoomtown apartment markets as of the end of 2021 stood at roughly 10%, compared with a U.S. average gain of about 6%, according to the report. Even before the pandemic, these secondary markets saw strong revenue growth.

Renter income in the Zoomtown markets has also grown prodigiously in recent years as people move from higher-cost primary markets to work remotely, bringing their higher incomes with them. While the U.S. average renter incomes have increased almost 15% since Q4 2019, secondary-market renter incomes have increased roughly twice as fast, at more than 29%, the report says.

Investors have taken note. A comparison of the current annualized investment volume to the pre-pandemic peak of Q3 2019 shows Zoomtowns are up 133% since then. By contrast, investment in non-Zoomtowns is up roughly 70%. 

Berkadia found that Zoomtown markets tend to be near but not part of larger markets, such as Richmond is near Washington, D.C., and subject to large in-migration in recent months, such as Boise, Idaho. Also, the markets tend to be located in more scenic parts of the country with various recreational opportunities, such as territory around Boulder, Colorado.

Other Zoomtowns include Provo, Utah, and Reno, Nevada, in the West; Charleston, South Carolina, and Huntsville, Alabama, in the South; and Manchester, New Hampshire, in the Northeast.