For a long time, the playbook was simple: buy in New York, Los Angeles, San Francisco, Chicago. The big markets. The ones everyone knew. The ones that always made sense on paper.
That playbook is changing.
More and more commercial real estate investors — from family offices to private equity groups to individual operators — are shifting their attention toward smaller cities, secondary markets, and overlooked corridors that would have barely registered five years ago. And it’s not a trend born out of desperation. It’s a calculated move.
Here’s why.
What Are “Gateway Cities” — and Why Did They Dominate?
Gateway cities are the major metropolitan markets that have historically attracted the most institutional capital: New York, Los Angeles, Boston, Chicago, San Francisco, Washington D.C., Seattle, Miami. They’re large, liquid, and well-understood.
For decades, investing in gateway cities made sense because:
- Demand was deep and consistent
- There was always a buyer if you needed to exit
- Lenders were comfortable
- Institutional tenants preferred them
But those same characteristics have created a problem: too much capital chasing too few deals, at prices that make it very hard to generate real returns.
The Math Has Shifted
Cap rates in gateway markets have been compressed for years. In many cases, you’re buying at a 4% or even sub-4% cap rate — meaning you need everything to go right just to break even on a leveraged basis.
Meanwhile, secondary and tertiary markets — think Lexington, KY; Portsmouth, VA; Salem, MA; Nicholasville, KY; smaller Sun Belt cities and Midwest corridors — are trading at meaningfully higher cap rates, often 6% to 8% or more depending on asset type.
That spread matters enormously when:
- Interest rates are elevated
- Debt service coverage is tight
- You need cash flow from day one
A property in a secondary market generating a 7% cap with modest rent growth can outperform a gateway trophy asset at 3.5% on virtually every return metric that matters.
Population and Business Migration Is Real
It’s not just a pricing story. The underlying fundamentals have shifted too.
Remote work loosened the grip that major metros had on where people live and work. When you no longer have to commute to a Manhattan office five days a week, paying $4,000 a month for a one-bedroom becomes a choice — not a necessity.
People moved. Businesses followed. And self-storage, retail, and commercial demand followed them.
Secondary markets that have benefited from this migration are seeing:
- Rising occupancy across storage and commercial assets
- New business formation from transplants launching local ventures
- Increased demand for flex and light commercial space
- Infrastructure investment from states and municipalities trying to attract and retain residents
This isn’t speculative. It’s showing up in rent rolls.
Self-Storage Is a Perfect Example
Self-storage is one of the asset classes that has benefited most from the shift away from gateway cities. Here’s why it works especially well in secondary markets:
Lower land and construction costs mean replacement cost is lower, which supports valuations and limits new supply competition compared to dense urban markets.
Demographics work in your favor. People moving to new cities — whether downsizing from a larger home or transitioning between living situations — are exactly the tenants self-storage operators want. They rent units, stay longer than expected, and tend to be reliable payers.
Barriers to entry exist in unexpected places. A small city with limited available land, a slow permitting process, or an established local operator can actually have stronger supply constraints than a major metro where capital flows freely into new development.
Demand is more resilient than people think. Self-storage historically performs well in downturns — people store when they move, when they downsize, when businesses contract, and when life gets complicated. None of that behavior is limited to big cities.
The Liquidity Concern Is Real — But Manageable
The most common objection to investing outside gateway markets is liquidity. If something goes wrong, or you need to exit, is there a buyer?
It’s a fair question. Gateway markets are more liquid — there’s no getting around that.
But a few things are worth considering:
- You’re often buying at a price that already reflects the liquidity discount. Higher cap rates partially compensate for thinner buyer pools.
- The buyer universe for secondary markets has grown. Regional operators, family offices, and private equity platforms have all expanded their geographic appetite over the past decade. Assets that might have sat on the market for a year in 2010 now attract competitive processes.
- Hold strategy matters. If you’re investing in secondary markets with a 7-10 year hold in mind — not a 2-year flip — liquidity risk shrinks considerably. These assets produce cash flow in the meantime.
What to Look For in a Secondary Market
Not all secondary markets are created equal. The ones worth investing in tend to share a few characteristics:
- Population stability or growth — even modest, consistent growth is better than a market in structural decline
- A diversified local economy — university towns, state capitals, healthcare hubs, and manufacturing centers tend to hold up better than single-industry towns
- Infrastructure investment — highways, logistics corridors, and employer relocations are signals of long-term demand
- Limited new supply pipeline — particularly important for self-storage, where new development can quickly dilute occupancy
- Strong local operators — in commercial and retail, anchor tenants and local businesses that have survived cycles are good signs
The Bigger Picture
Gateway cities will always attract capital. They’re not going anywhere, and for certain investors and certain strategies, they still make sense.
But the assumption that secondary markets are inherently riskier or less sophisticated than major metros deserves a second look. In many cases, the opposite is true — you’re buying better cash flow, less competition, and assets with real upside, in markets where local knowledge and operational focus genuinely make a difference.
That’s exactly the kind of opportunity that gets overlooked when everyone is chasing the same handful of zip codes.
The investors paying attention to secondary markets right now aren’t settling. They’re just doing the math.