Post‑COVID Rental Trends: Why Tier‑2 Cities Are the New Hotspot for Landlords

Imagine you just received three back-to-back lease renewal offers for a single-family home in Boise, while the neighborhood’s vacancy rate sits at a historic low. That’s the kind of surprise many landlords are experiencing as the rental market reshapes itself after COVID-19.

Post-COVID Rental Landscape Overview

After the pandemic, secondary-city rentals have become tighter, with vacancy rates falling faster than in primary metros and rent growth accelerating sharply. The combination of remote-work-driven migration and stronger local economies has created a surge of new listings that quickly fill, pushing average rents up by double digits in many Tier-2 markets.

Data from the National Multifamily Housing Council shows that the national vacancy rate slipped from 6.5% in mid-2022 to 5.1% by the end of 2024, while Tier-2 cities posted a median vacancy of just 3.1% in Q4 2024. This contraction has forced landlords to tighten screening standards and raised the average time a unit stays occupied from 68 days to 42 days.

Meanwhile, rent growth in these markets outpaced the nation’s average. A recent Zillow analysis recorded a 9.4% increase in median rent across secondary cities in 2024, compared with a 6.5% rise in the top-10 metros. The higher growth reflects both wage gains - average annual earnings rose 4.8% in Tier-2 areas - and a tighter supply of new units, as construction pipelines have not kept pace with demand.

Key Takeaways

• Median vacancy in Tier-2 markets fell to 3.1% by Q4 2024.
• Rent growth averaged 9.4% in secondary cities, 15% higher than primary metros.
• Remote-work migration and local job gains are the primary drivers.
• Landlords face shorter vacancy periods and tighter screening.

These tightening vacancy rates set the stage for a parallel surge in rent growth, which we explore next.

Vacancy Rate Dynamics in Tier-2 Markets

Tier-2 markets - often defined as cities with populations between 250,000 and 1 million - have seen vacancy rates compress at a pace that surprised many analysts. According to the U.S. Census Bureau’s 2024 Population Estimates, net migration to these cities averaged 12,000 new residents per month, a 22% increase over pre-pandemic levels. This influx is directly linked to the 3.1% median vacancy reported by the American Rental Association for Q4 2024.

Job growth has reinforced the vacancy squeeze. The Bureau of Labor Statistics recorded a 3.9% year-over-year increase in employment in Tier-2 metros, outpacing the 2.4% rise in primary metros. Sectors such as tech-enabled services, advanced manufacturing, and health-care have been the biggest contributors, providing stable, middle-income jobs that support rental demand.

Supply constraints have amplified the vacancy decline. Building permits for new multifamily units in Tier-2 cities dropped 8% in 2023, reflecting higher material costs and labor shortages. As a result, the net new supply of rental units was just 0.6% of existing stock, far below the 2.1% national average.

Landlords who own units in markets with sub-3% vacancy now report higher tenant turnover costs but also enjoy higher rent-to-value ratios. The average rent-to-value ratio in these cities rose to 6.2%, compared with 5.1% in primary metros, indicating stronger cash-flow potential for investors.

With vacancy pressure firmly in place, the next logical question is how rents are responding.

Rent Growth Metrics in Emerging Markets

Rent growth in secondary cities has been robust, with the 9.4% average increase in 2024 standing out as a benchmark for investors. This growth is not uniform, however; markets that combine strong population inflows with diversified employment bases have outperformed the average.

For example, Boise, Idaho, recorded a 12.1% rent increase in 2024, while Charlotte, North Carolina, posted a 10.8% rise. Both cities meet the 1.5% annual population growth threshold and have employment sectors spread across finance, technology, and logistics. In contrast, a market like Dayton, Ohio, with slower population growth (0.9%) and a narrower job base, saw rent growth of only 5.2%.

Wage gains have reinforced the ability of renters to absorb higher rents. The Economic Policy Institute reports that median hourly earnings in Tier-2 markets grew 4.8% year-over-year, compared with 3.1% in primary metros. This increase has kept rent-to-income ratios within a sustainable range; 78% of households in Tier-2 cities spend less than 30% of their income on rent, versus 69% in primary metros.

"Rent growth in Tier-2 markets hit 9.4% in 2024, outpacing primary metros by 15%."

Supply-side pressures also play a role. The National Association of Home Builders noted that new construction in Tier-2 markets fell by 8% in 2023, limiting the ability of the market to meet rising demand and further driving rent increases.

Higher rents, paired with low vacancy, directly influence investor returns, which we break down next.

Investor Return Implications

Higher rents and tighter vacancies have directly boosted net operating income (NOI) for landlords in secondary cities. The average NOI margin in Tier-2 markets rose from 48% in 2022 to 55% in 2024, according to a report from Real Capital Analytics.

Cap rates - the ratio of NOI to property value - have compressed as investors compete for limited inventory. In 2024, the median cap rate for multifamily assets in Tier-2 markets fell to 4.6%, down from 5.2% in 2022. This compression translates into higher property valuations but also improves risk-adjusted returns for owners who can lock in lower financing costs.

The rise in NOI margins has helped offset the modest increase in financing costs after the Federal Reserve’s 2023 rate hikes. Because secondary markets are less sensitive to Fed policy - thanks to their lower exposure to high-cost corporate debt - investors have seen stable cash flow even as borrowing rates rose to 5.3% for a 30-year fixed loan.

Overall, risk-adjusted returns measured by the internal rate of return (IRR) have climbed from an average of 8.2% in 2022 to 10.5% in 2024 for Tier-2 multifamily portfolios, according to a Bloomberg Real Estate survey.

These stronger returns naturally lead investors to ask: which markets deserve a closer look?

Market Selection Criteria for Investors

What to Look For

• Annual population growth of at least 1.5%.
• Diversified employment base covering at least three major industry sectors.
• Median rent below 30% of the average household income.
• Vacancy rate under 3.5% for the most recent quarter.
• Cap rates between 4.5% and 5.0% indicating market balance.

Investors should start with demographic data. The Census Bureau’s 2024 estimates show that cities such as Raleigh-Durham (1.8% growth) and Spokane (1.7% growth) meet the population threshold while maintaining diversified job markets. Raleigh-Durham’s employment spread across technology, education, and health-care provides a buffer against sector-specific downturns.

Affordability metrics are equally critical. Using the HUD income-to-rent ratio, researchers found that in markets like Columbus, Ohio, the median rent represents 28% of median household income, keeping the market attractive for renters and reducing default risk.

Finally, examine vacancy trends and cap rates. A market that consistently reports vacancy under 3.5% and cap rates in the 4.5-5.0% range signals a balance between demand and price, offering upside potential without excessive risk.

Armed with these filters, the next step is to understand how policy and infrastructure shape the long-term outlook.

Policy and Economic Factors Shaping Trends

Recent policy shifts have amplified the attractiveness of secondary cities. Several states - Colorado, Texas, and Arizona - have relaxed rent-control provisions that previously limited annual rent increases, allowing landlords to adjust rates in line with market demand.

Infrastructure investment has also played a role. The Bipartisan Infrastructure Law allocated $12 billion to transportation projects in Tier-2 regions, improving connectivity and making these cities more appealing to remote workers seeking commuter-friendly locations. For instance, the extension of commuter rail service in the Boise metro area reduced average commute times by 12 minutes, according to the Idaho Department of Transportation.

Macroeconomic conditions have favored secondary markets. The Federal Reserve’s 2023 rate hikes impacted high-cost borrowing in primary metros more than in Tier-2 cities, where a larger share of financing comes from regional banks with more flexible terms. As a result, the sensitivity of Tier-2 property values to interest-rate changes has been lower, sustaining price appreciation even as national rates rose.

These policy and economic factors combine to create a virtuous cycle: relaxed rent rules boost cash flow, infrastructure upgrades attract new residents, and lower rate sensitivity sustains investor confidence.

With the environment turning more favorable, investors can now act on concrete strategies to grow their portfolios.

Actionable Strategies for Portfolio Expansion

Investors looking to capitalize on the secondary-city boom should follow a systematic approach.

1. Target the Q2-Q3 2024 vacancy dip. Data shows that vacancy rates briefly rose to 3.8% in July 2024 before returning to sub-3% levels. Purchasing during this dip can lock in lower acquisition prices.
2. Use AI-enhanced tenant screening. Platforms like RentPrep AI analyze credit, rental history, and even social-media signals, reducing default rates by up to 18% compared with traditional screening.
3. Focus on single-family rentals (SFRs). SFRs in Tier-2 markets posted a 7.2% annual appreciation in 2024, while delivering average cash-on-cash returns of 9.1%.
4. Structure deals with sub-3% vacancy assumptions. Financial models that assume vacancy below 3% produce higher projected NOI and more attractive IRR calculations.
5. Leverage local partnerships. Working with regional property managers who understand local market nuances can improve lease-up speed by 15%.

By aligning acquisition timing with market cycles, employing technology for risk mitigation, and selecting asset types that have demonstrated resilience, investors can maximize yields while maintaining portfolio diversification.

Below are some frequently asked questions that often arise when landlords explore Tier-2 opportunities.

Frequently Asked Questions

What defines a Tier-2 market?

Tier-2 markets are typically cities with populations between 250,000 and 1 million that show strong net migration, diversified employment, and lower vacancy rates than primary metros.

Why are vacancy rates lower in secondary cities?

Remote-work migration, robust local job growth, and constrained new construction have combined to tighten supply, driving vacancy rates down to around 3.1% in Q4 2024.

How does rent growth compare to primary metros?

Rent growth in secondary cities averaged 9.4% in 2024, which is roughly