Definition: What is a submarket?

A submarket is a smaller segment of a larger market, typically found in industries like real estate and economics. 

Real estate professionals use the concept of submarkets to analyze and comprehend the dynamics of local property types, markets, and neighborhoods. A submarket typically refers to a neighborhood or suburb within a larger Metropolitan Statistical Area (MSA). 

For instance, a city like New York City would represent the larger market if you are exploring commercial properties. In contrast, submarkets like Manhattan, Brooklyn, or Queens would represent smaller segments within that market. Each submarket has unique characteristics, property types, and market trends that may differ from those in the overall market.

Submarket analysis involves studying these smaller segments to gain insights into factors that influence the real estate market and property types within a submarket, such as supply and demand, rental rates, and occupancy levels. Understanding these details allows you to make more informed decisions when investing in or managing properties within specific neighborhoods or areas.

Some key entities to consider when exploring submarkets include:

  • Property types: It is crucial to understand the properties you are interested in, such as residential, commercial, or industrial since each can have unique market dynamics and performance metrics.
  • Neighborhoods: The geographic location of a submarket can be critical in understanding local real estate trends, as well as access to amenities, transportation, and infrastructure.
  • Demographics: Analyzing local population characteristics, such as age, income, and education levels, can provide insight into the demand for different property types in a submarket.
  • Market trends: Identifying patterns in a submarket, such as rent growth or vacancy rates, can help you forecast future performance and make strategic decisions accordingly.

Origin of the Concept of a Submarket

Understanding what a submarket means is essential as it has significant implications for various aspects of business. For instance, companies evaluate different submarkets in a product-market strategy to identify their competitors. They look for unique characteristics and demands within these submarkets to tailor their products and services accordingly.

Similarly, while examining product-markets, businesses often analyze multiple smaller submarkets to determine their strengths and weaknesses. By examining these submarkets, they can devise strategies to better compete in the overall market.

Synonyms and Antonyms of Submarket

Synonyms for submarkets include subdivisions, segments, or niches. These terms refer to smaller, specialized sections of a broader market. For example, companies in a particular industry can target specific consumer groups by focusing on a niche.

On the other hand, we have antonyms for submarkets, which are expressions that convey the opposite meaning. Think of terms like whole market, entire market, and total market. These phrases suggest a comprehensive, all-encompassing view of the market rather than a specialized or segmented focus.

How Submarkets Are Used Usage

Submarkets provide insights into market segments within larger areas. When analyzing commercial property trends, focusing on office submarkets reveals how various office buildings perform. In mixed-use submarkets, you’ll see that off-core ones often comprise less office space than central business districts (CBDs). For instance, while Chicago, Boston, San Francisco, and Washington, DC CBDs consist of over 70% office space, mixed-use submarkets in those cities average only 58% office space.

Keeping track of rent growth rates in submarkets within the Sun Belt, particularly in suburban areas of Florida, can provide valuable insights, as these areas have recorded the strongest rent performances in the country since the start of the pandemic. Conversely, urban Gateway submarkets have experienced the weakest rent growth during the same period.

Analyzing submarkets can help you understand different market segments, identify trends in commercial properties, and make informed decisions when investing in commercial real estate.

Examples of Submarkets in Different Industries

Let’s take a look at some examples that will help you understand this concept better.

Real Estate Submarkets: When it comes to commercial real estate, New York City is a massive market that includes several submarkets within its Metropolitan Statistical Area (MSA). For example, Manhattan is a prominent submarket within the larger New York City market. Similarly, other cities such as Atlanta, Dallas, Los Angeles, and Washington DC also have their own MSA and can be further broken down into smaller submarkets based on different property types and locations.

Beverage Industry Submarkets: The beverage industry is a good example of how a market can be divided into smaller submarkets. For instance, the industry can be subcategorized into water, juice, soda, and others. Major multinational corporations such as Coca-Cola may define these submarkets by major geographic regions, such as the juice market in South America. This helps the company understand and address the specific needs and preferences of local markets.

In both examples, submarkets serve as useful tools for businesses to analyze and adapt their offerings to consumers with varying preferences and needs. By identifying these niche submarkets, companies can better serve their customers and make informed decisions about their strategies and marketing efforts.

Related Terms

Office, Retail, Industrial, Commercial Real Estate: You’ll find properties within submarkets that can be classified under office, retail, industrial or commercial real estate. These submarkets cater to different tenants with specific needs and locations.

Demographic and Job Growth: Submarkets are influenced by demographic shifts and job growth. Locations with strong job growth or an attractive demographic profile often present opportunities for investors and developers.

Multifamily: Multifamily properties refer to residential buildings, such as apartment complexes, that house multiple families. These properties can also be found in submarkets.

Price: Prices within submarkets can vary significantly based on factors like location, property type, and tenant mix. Analyzing prices in submarkets is crucial for making informed real estate decisions.

CoStar: CoStar is a software tool used to analyze and access data on commercial real estate markets, including submarkets. It allows you to track trends, risks, opportunities, and much more.

Risks and Opportunities: Each submarket has its unique set of risks and opportunities, influenced by factors like price, location, and economic growth.

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