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What are the Characteristics of a “Good” Market/Submarket?

It is common for commercial real estate(CRE) investors to spend a significant amount of their pre-purchase due diligence time analyzing a property’s potential rental income and operating expenses to determine what net cash flows could ultimately be received. This information provides important input into the ultimate buy/don’t buy decision, but it isn’t the only information that should be considered. A property’s location is equally, if not more important, than the property’s potential cash flows and should be considered carefully prior to making a commercial real estate investment. But, market analysis can be complicated, time consuming, and data intensive. Instead of getting lost in a mountain of data, we believe it is important to focus on a few key components, which will be the focus of this article.

3 min read

Market and Submarket Defined

The most logical place to start a discussion of market analysis is with a definition of exactly what a market is.  Casually, the term “market” typically refers to the geographic location of a commercial property.  However, we prefer a more disciplined approach because it helps with the acquisition and parsing of data.

The United States Census Bureau / Office of Management and Budget (OMB) defines a “Metropolitan Statistical Area” or MSA as a geographic region with a high population density at its core and close economic ties throughout the area.  These geographic distinctions are used by the Census Bureau and OMB to parse statistical data and they are a handy reference point for identifying a property’s location because there is a significant amount of data available for each of them.  For reference, this link identifies the 384 MSAs in the United States.  So, when we talk about a “market” we typically reference the most closely associated MSA as its location.

But, as the definition suggests, an MSA covers a large geographic area.  For example, the largest MSA in the United States is New York/Newark, which covers a population of nearly 20M people and a significant number of “submarkets” which are smaller divisions of the larger MSA.  While referencing an MSA can be useful to provide broad, high level information about a market, the desirability of a submarket can vary widely from one to another.  For example, within the New York/Newark MSA, there are high growth/high price submarkets like Manhattan or Brooklyn and lower growth/ lower price areas like Newark or The Bronx.

The point is this, in order to perform impactful market analysis, it is first necessary to define exactly which market/MSA and submarket it is located in.  Doing so will help identify the most relevant data to be analyzed.

What are the Characteristics of a “Good” Market/Submarket?

Every market is unique and every investor has their own criteria that separate a “good” market from a less desirable one.  But, there are a few general characteristics that all good markets share:

Population Growth / Net Migration

To identify growing markets, one helpful metric is positive net migration, which is when there are more people moving into a market than out of it.  For example, in 2019 the United StatesCensus Bureau notes that Florida and Texas are the states with the highest net in migration while California and New York had the highest out migration.  So, it would follow that certain markets in Florida and Texas are growing, while other markets in NY and CA are shrinking.


It is important to not look at jobs alone.  It is important to understand whether the local income demographics support the intended use of the property.  For example, it may not be a good idea to purchase a high end shopping mall in an area whose income does not support it.


The best markets are both economically diverse and demographically diverse.  From an economic standpoint, some markets like Orlando or Las Vegas are highly levered to one or two industries like travel/tourism, which are highly cyclical and could suffer disproportionately in an economic downturn (or COVID pandemic).  Other markets like Atlanta or Dallas have highly diversified economies that are levered to traditionally stable (relatively speaking) industries like financial services, education, and healthcare.  From a demographic standpoint, the best markets tend to be diverse in both age and racial makeup.  Often, these are found in major metropolitan areas.

Market Drivers

The best markets tend to have one or more major drivers of jobs, income, and population growth.  These drivers could be a major employer like Amazon (Seattle) or Disney (Orlando), a major university like the University of Texas (Austin) or MIT (Boston), good weather (Florida, Arizona, or Colorado), major airports (Atlanta), or a large government presence (Washington DC).  Some markets have multiple drivers, which can add additional strength.  


Each market has their own supply and demand characteristics so it is important to review the inventory for the desired property type.  For example, if an investor is convinced that rising levels of e-commerce will lead to continued demand for Class A Industrial properties, they want to find markets where the existing supply of industrial space is low and the demand for it is high.

Sub-Market/Property Level Characteristics

Once a broad market/MSA has been declared investable, it is necessary to take a more detailed view at the sub-market/property level characteristics to ensure they are a good fit for the investment strategy. The characteristics of a strong sub-market are similar to those of the broader market, but at a more detailed or proximate level.  We like to look at all of the data points above, but measure them for the immediate area surrounding the property.  In addition, as a last step before finalizing a purchase, we like to perform a “site visit” to look for the following favorable submarket/property level characteristics:

  • Visibility:  The property’s visibility from the road is strong with good signage.
  • Occupancy:  The actual occupancy of the property is the same as what was advertised in the Offering Memo.  
  • Ingress/Egress:  Access to and from the property is simple and easy.  If it is at a signalized intersection, even better.
  • Transportation Hubs:  We like to look for close proximity to major transportation nodes like highways, bike paths, subway/train stops, and/or airports.
  • Road Conditions:  Are the roads surrounding the property in good condition and well maintained by local authorities.
  • Market Trends:  We like to see if the property is in the “path of progress” meaning that it is within the vicinity of new or planned developments that could drive additional traffic to the asset.
  • Vacancy Rates:  Do surrounding properties have high levels of vacancy that could bleed over into the target property?
  • Pricing:  Do the surrounding properties have comparable prices from both a rental and sale perspective?

If we are satisfied with every aspect of the data and observations, we have the confidence we need to proceed with an investment decision.

Where Does Market / SubMarket Data Come From?

Our analysis is only as good as the data we use and accurate market data for the real estate industry can be difficult to come by.  As a large property owner and active buyer of properties, we invest a significant amount of time and resources into ensuring we have the most up to date data.  To that end, we compile it from various public sources like the Federal Reserve, US Census Bureau, Bureau of Labor Statistics, and local governmental agencies.  But, we also obtain it from private sources like leading economists, the research arms of major brokerages like CBRE or JLL, and paid sources like CoStar.


The choice of a market and submarket are as important, if not more so, than the analysis of a property’s potential cash flows during the pre-purchase due diligence process.  To select a market and submarket, analysis should be performed using public and proprietary data as well as through observations obtained from a visit to the target property.  If the market is promising, it provides added confidence in the ultimate investment decision.

Originally published on First National Realty Bank

All information provided has been obtained from sources deemed reliable.  However, neither Victory Real Estate Group nor any of its brokers, agents, employees, officers, directors or affiliated companies (collectively, Victory Real Estate Group and Related Parties) have made an independent investigation of the Information or the Information sources, and no warranty or representation is made by Victory Real Estate Group and Related Parties as to the accuracy of such Information. The Information is submitted subject to the possible errors or omissions, and no person or organization should rely on the Information, unless such person or organization has conducted and independent investigation to confirm the accuracy thereof.

Frequently Asked Questions

Kendys Carrizo
Executive Assistant and Marketing Coordinator Victory
March 2, 2023

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