Commercial Investments in Large Cities or Small Towns -
Which Is Better?
I’m often asked where the smartest place to invest in commercial real estate might be—should you pursue commercial investments in large cities or small towns? As a CCIM (Certified Commercial Investment Member), I’ve spent years advising clients on evaluating their short- and long-term goals in real estate. Recent data reveals that a younger workforce is migrating into smaller markets, causing many real estate investors to reconsider the potential beyond metro hubs. While there’s no one-size-fits-all answer, there are distinct advantages and drawbacks to each option. Here’s how I see the landscape shaping up—and why smaller towns deserve your close attention.
The Rising Popularity of Smaller Markets
One of the most notable changes we’ve seen, especially following the height of the COVID-19 pandemic, is a demographic shift: individuals aged 25 to 44 are increasingly leaving major cities for smaller towns. Research indicates that younger professionals are opting for more affordable living costs, better quality of life, and the possibility of remote or hybrid work arrangements. These trends have created significant opportunities for savvy real estate investors.
A Revival in Rural Regions
According to estimates from multiple demographic studies, small towns and rural counties have experienced a notable spike in population since about 2020. Where once it was normal for young adults to leave small towns in pursuit of city-centered careers, the opposite is now unfolding. This population boost has renewed economic activity in places that, for decades, struggled with aging demographics and vacant commercial spaces. In many towns, local businesses are re-emerging, and vacant properties are being repurposed or rebuilt—creating fertile ground for new commercial investment.
Benefits of Commercial Investments in Large Cities or Small Towns
The question of city versus town investing often boils down to understanding what benefits each location offers. I like to think of these benefits in three main categories: affordability, tenant demand, and scalability.
Affordability
Tenant Demand
Scalability
Key Considerations for Investors
When you evaluate commercial investments in large cities or small towns, there are specific factors to weigh. These considerations can shape your strategy and help you gauge each area’s potential profitability.
Local Economic Drivers
In large cities, you might see constant demand spurred by corporate headquarters, major universities, or high-density shopping districts.
Smaller areas may not have the same volume of industries but can experience growth in niches like tourism, infrastructure projects, or the arrival of new tech corridors such as data centers.
Evolving Work Patterns
Commercial vs. Residential Overlap
In smaller cities and towns, you might spot lucrative short-term rental possibilities (for instance, near a scenic trail or a local attraction). These can double as both commercial and residential ventures when you operate them like vacation rentals or business accommodations.
Larger cities can also yield strong returns on mixed-use properties. But, be aware that vacancy rates can rise if there are shifts in corporate hiring or real estate cycles.
Local Demand for Data Centers and Tech
A growing factor in smaller-town opportunities is the sudden expansion of data centers and other technology-driven industries. These developments require vast tracts of land and bring in new workers who need housing, office space, and retail services.
Investors who proactively research regional tech expansion can purchase land or properties early and then cater to these incoming workforces, either by offering commercial spaces or short- and long-term rentals.
Commercial Investments in Large Cities or Small Towns: Challenges to Watch
Even with an optimistic outlook, every investment carries inherent risk. Smaller markets may lack the immediate liquidity of major cities, meaning it can take longer to sell property or fill vacancies. Economic dips might be harder to weather if a town relies on one main employer or industry. Conversely, big cities can be prone to oversupply, regulatory constraints (like zoning changes), and stiff competition that can drive up prices and reduce your profit margins.
Strategies for Success
Thorough Research and Due Diligence
Always study local economic indicators and consult local professionals. Examine population trends, job growth, local government incentives, and the health of different industries. In any market, understanding the “why” behind property price movements is essential.
Build Local Networks
When you’re exploring a smaller town’s market, forge relationships with real estate agents, lenders, and community leaders on the ground. These local connections often hold the key to off-market opportunities and partnerships. In bigger cities, networking with commercial brokers and city council members can provide essential insights into upcoming development or zoning changes.
Adapt to Tenant Preferences
Leverage the Post-Pandemic Shift
Keep an eye on hybrid and remote work policies that might drive more people into smaller or mid-sized cities.
In major metros, watch for signs that businesses and workers are returning to conventional offices, which could bolster demand for commercial properties.
Looking Ahead: Why Now?
With younger demographics gravitating to smaller towns, coupled with the need for data centers and tech infrastructure in regions with ample land, the momentum for smaller-market commercial investing isn’t just a short-term fad. Large cities will always remain magnets for certain industries and high-salary positions—but the economic and cultural shifts over the last few years have broadened the playing field. Investors stand to benefit by positioning themselves on the leading edge of these long-term trends.
A Note on Risk and Professional Guidance
Whether you’re drawn to commercial investments in large cities or small towns, there’s no getting around the fact that all investments involve risk. Market cycles can turn unexpectedly, industries can shift locations, and property values can fluctuate. It’s wise to analyze your personal risk tolerance thoroughly, compare properties, and review local regulations before committing funds to any project.
I always tell clients that real estate success involves a team. Work with an expert—preferably a commercial real estate professional or a CCIM—who can help you understand how your goals fit into the broader context of regional market changes. The right adviser can help you build a plan that mitigates risk and sets you up for both short-term cash flow and long-term appreciation.
Brion Costa, CCIM
Century 21, Commercial
626-695-7385
DRE#: 00939864
