Commercial real estate in mid-sized cities: expansion or saturation?

To explain the boom in investments in mid-sized cities, Rafael Batista states that these locations have become more strongly connected to key production chains such as agribusiness, industry, and logistics, which boosts regional income and strengthens the business environment.

“We also observe the service sector as a key driver. Regions with strong agribusiness accumulate income, stability, and large local companies, generating an expansion of the middle class and demand for services such as premium healthcare, higher education, leisure, and restaurants, for example. These cities have become true regional service hubs: healthcare, education, entertainment, technology, and legal services.”

This regional dynamism is also reflected in academic studies. According to Diana Meirelles da Motta, a retired researcher from Ipea, mid-sized cities play a strategic role in regional economic articulation.

“These cities function as regional hubs for articulation and integration, especially in areas of agricultural expansion, mining activity, and international land borders, with strong relevance in healthcare and education services, as well as innovation and logistics—driving economic activity, attracting population, and contributing to real estate investment in mid-sized cities.”

She also highlights that population growth in these centers has been significant in recent years.

“In terms of demographic dynamics, mid-sized cities have grown more than metropolitan areas. The country’s annual population growth rate between 2010 and 2022 was 0.52%, and the five cities with the highest geometric growth rates are mid-sized cities such as Sinop-MT (4.69%) and Parauapebas-PA (4.68%).”

As a result of these factors, Batista notes that a consistent process of economic decentralization is taking place in Brazil, with cities outside major centers gaining prominence in business generation, job creation, and investments.

“In the corporate real estate market, there are greater risks related to sector concentration and dependence on a few large tenants, structural vacancy, and a lower depth of investors and end-users for specific products.”

Diana Motta’s perspective aligns with this long-term view, albeit with some reservations.

“This process is seen as a trend of interiorization and strengthening of mid-sized cities and the country’s urban network.”

At the same time, she points out that the phenomenon is not homogeneous.

“These are cities that have simultaneously shown economic and demographic dynamism; however, this has not occurred across all mid-sized cities in general.”

As productivity and population in mid-sized cities continue to grow, the hypothesis naturally arises that these centers could eventually transform into new major urban hubs.

Batista, however, emphasizes that the process tends to follow different paths in each location.

“Each city develops its own model, adapted to its economic and urban characteristics. Although some references from major capitals can serve as inspiration, the reality of mid-sized cities requires more contextualized project planning.”

Regarding market saturation, the executive highlights that monitoring must be continuous to avoid imbalances between supply and demand.

“Especially in cities that do not yet have a mature and consistent market, developments must strictly follow demand, as less mature markets may not be able to absorb supply, leading to permanent vacancy.”

Beyond real estate balance, the growth of mid-sized cities also brings urban management challenges.

“The interiorization of companies increases demand for urban areas, impacting urban planning. Therefore, these cities require qualified urban management and appropriate regulation to address the dynamics of new developments.”