The Rent Roll with Jay Parsons

Episode #60: Anne Olson | Overlooked Tertiary Markets
Date: November 20, 2025

Main Theme & Purpose

This episode centers on the underappreciated strength and potential of tertiary rental housing markets in the U.S.—those smaller cities that are often overshadowed by major metros. Jay Parsons delves into the performance of these markets, exploring their resilience, the impact of supply shortages, investment trends, and how they are being valued by Wall Street and institutional capital. Special guest Anne Olson, CEO of Center Space—a unique REIT with a heavy presence in tertiary markets—shares her perspective on operating and investing in these locales and why investors and analysts may be missing key fundamentals in these areas.

Key Discussion Points & Insights

1. Tertiary Markets—Not Just a Covid Story

• Trend Away From “Zoom Towns”: Parsons distinguishes between the post-pandemic boom in “zoom towns” (seasonal/vacation-heavy areas) and genuinely resilient small cities with strong job bases.
• Sustained Outperformance: Smaller markets like Boise, Wilmington, Savannah, and Charleston have demonstrated long-term stability and growth, particularly in rent performance.

2. Supply Dynamics and Rent Growth

• Reduced Supply Growth: Construction has slowed in both large and small markets post-pandemic, but tertiary markets peaked lower (below 5%) and now have even less new supply being added (below 2%) (05:25).
• Rent Growth Outpacing Larger Markets: Across all U.S. regions, tertiary markets outperformed top-50 metros in annual average rent growth from 2020-2025, frequently maintaining 5-6%+ annually (07:33).
• Top-Performing Tertiary Markets (Last Five Years):
  • 16 of top 20 high rent growth markets are tertiary (Atlantic City 7.9%, Naples FL 7.5%, Knoxville, Savannah, etc.)

"Every region in the country, tertiary markets have outperformed larger markets by a pretty sizable margin for average annual rent growth."
— Jay Parsons (08:30)

3. Capital Markets & Investment Flows

• Rising Share of Investment: Share of total U.S. apartment sales going to tertiary markets has nearly doubled from early-2010s (12-14%) to around 22-23% today (11:21).
• Increasing Liquidity & Local Investor Dynamics: As large institutional buyers drive up prices in major markets, local and regional investors look for better yields in smaller, sub-institutional markets.
• Most-Targeted Tertiary Markets: Charleston, SC (#1), Sarasota FL, Greenville SC, Tucson AZ, Colorado Springs CO, Savannah GA, and others have seen billions in sales, disproving the idea that all small markets are illiquid (13:01).

"Some people say that smaller markets are not liquid, but that’s not always true. Some of these markets may be more liquid than markets with much bigger populations."
— Jay Parsons (15:10)

4. Yield, Cap Rates, and Market Perceptions

• Cap Rate Discount Shrinking: The historic discount for investing in tertiary markets has narrowed from 60-80 basis points pre-Covid to about 40 bps now, especially in “trendy” small markets.
• Perceived vs. Actual Risk: Markets like Charleston and Reno buck the stereotype; their higher liquidity and robust stories (jobs, demand) challenge the “more volatile, less liquid” narrative.

5. Long-Term Growth Forecasts

• Oxford Economics: Population & Job Growth: Smaller markets are forecasted to lead in both population and employment growth for 2025-2035 (e.g., St. George UT, The Villages FL, Provo UT, Myrtle Beach SC).
• Major Markets Still Prominent: Austin, Dallas, Orlando, Raleigh, Houston, Phoenix, etc., still top overall growth, but they now share the stage with smaller cities for future expansion (17:00).

Notable Quotes & Memorable Moments

On REIT Valuations and Perceptions

"We are going on year three of putting up what I would consider sector-leading revenue growth, same store NOI growth in particular. And yet we trade at one of the lowest multiples in the space."
— Anne Olson (32:39)

On Challenges of Gaining Investor Recognition

"First, these markets have less transaction volume ... that’s a real perception of illiquidity. Lack of transaction volume leads to fewer data points for investors ... It’s very easy to do in some of the bigger markets."
— Anne Olson (33:05)

On North Dakota’s Surprising Strength

"North Dakota is putting up some really good numbers…blended rate growth of 5.2%. That’s, other than maybe San Francisco, I don’t think anywhere else is doing that."
— Jay Parsons (35:02)

"It’s really a lack of supply ... Grand Forks, Bismarck, these are cities that haven’t seen much, if any, supply at all since early 2021. So that’s all been absorbed ... plus job activity, particularly government drone programming and engineering jobs."
— Anne Olson (35:29)

Deep Dive: Anne Olson Interview Segment ([29:57 – 55:34])

Background

• Anne Olson, CEO of Center Space, grew up on a farm, became a real estate attorney, then shifted to business/management, culminating in her CEO role (30:13).
• Center Space stands out among REITs for its heavy exposure to markets like Minnesota, Dakotas, Montana, and Nebraska.

Key Topics

1. Why Investors Struggle With Tertiary Markets (32:39)

• Low transaction volume complicates price discovery and generates a “perception of illiquidity.”
• These markets lack flashy growth narratives, even though underlying economies (Minneapolis, Grand Forks) are strong.

2. North Dakota Performance (35:29)

• 5.2% blended rent growth, 97%+ occupancy, 60% retention.
• Driven by lack of new multifamily and single-family supply, plus new job growth.

3. Expansion Decisions—Why Mountain West? (37:13)

• Expansion into Denver, Salt Lake City seen as “natural extension” of existing portfolio.
• Desire to stay differentiated (avoid “me-too” markets), leverage regional oversight, and balance stability with exposure to higher-growth but higher-volatility markets.

4. Balancing Diversification vs. Core Strengths (40:03)

• Strategic selling (e.g., St. Cloud MN) to fund acquisitions in more institutional markets.
• Weighing current cap rate differentials, near-term dilution, future growth, and CapEx needs.

5. REITs, Stock Buybacks, and Acquisition Environment (41:29, 43:47)

• Most REITs (including Center Space) are focused on share repurchases given stocks trading below NAV.
• Acquisitions with current cost of capital often dilutive, especially for smaller REITs; some “first mover” activity likely as capital costs shift.

6. Current Market Fundamentals (45:07)

• Earlier, shorter leasing seasons: “Leasing season has moved up a month, maybe a month and a half ... top of the funnel started to deteriorate in July, really in August.”
• Healthier demand among those touring and applying, despite lower overall prospect volume.

7. Renter Financial Health (51:05)

• Rent-to-income ratio down 60 bps vs. 2024, sitting at 21–22%—best ratios in years.
• Average applicant incomes up 6–7% year-over-year.
• Most move-outs due to job relocations; average renter age increasing (now just under 34).

8. Sector Observations & Demographics (53:00)

• Typical renters: Service, healthcare, education workers; average household income >$100K; increasing rental tenure (>30% stay >2 years).
• Rise in age for first-time homebuyers noted (now ~40 years old—up from 33 in 2021), indicating longer apartment stays.

Timestamps for Key Segments

• Introduction to Tertiary Markets: [00:03–05:00]
• Supply Trends & Rent Growth Analysis: [05:00–09:30]
• Top-Performing Markets List: [08:45–10:50]
• Investment Flow Trends: [11:21–16:00]
• Oxford Economics Forecasts: [16:30–17:00]
• Rental Housing Trivia & Headlines: [17:05–29:00]
• Anne Olson Interview: [29:57–55:34]
  • Olson on Investor Challenges: [32:39–34:33]
  • North Dakota Market Chat: [35:02–36:31]
  • Mountain West Expansion Strategy: [37:13–39:18]
  • Valuations, Buybacks, and Acquisitions: [41:29–43:47]
  • Market Fundamentals 2025: [45:07–47:05]
  • Renter Demographics/Financial Health: [51:05–54:19]

Final Reflections & Takeaways

• Tertiary markets have quietly outperformed many major metros on rent growth and stability, with relatively low supply and strong job bases.
• Despite fundamental strength, Wall Street investors, analysts, and the broader capital markets remain hesitant, often underestimating these markets due to perceived liquidity and growth narrative issues.
• Center Space’s strategy illustrates both the value and challenges of operating at the intersection of overlooked opportunity and institutional caution.

"We like that we're different...if I had chosen someplace like Charlotte, you would say, well, there’s a lot of REITs there. So now, not only am I competing against them for capital, but also for residents."
— Anne Olson (37:13)