Estimating the Size of the Commercial Real Estate Market in The U.S.
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Estimating the Size of the Commercial Real Estate Market in the U.S.
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The approximated total dollar value of business property was $20.7 trillion as of 2021: Q2.
Highlights
This research study note sums up a study by Nareit primarily utilizing information from CoStar that approximates the total dollar value of industrial property was $20.7 trillion since 2021: Q2. This research study updates and constructs upon the method for previous price quotes of the business genuine estate market.
Table 1 sums up the price quotes by residential or commercial property sector. The overall quote is $20.7 trillion. Measurement problems with the underlying information recommend that the real value of total CRE may vary from this point quote. An assessment of these sources of uncertainty recommends that the actual worth is highly likely to fall within a variety of $18 - $22 trillion. These price quotes are based on a bottom-up technique utilizing the very best readily available information for each residential or commercial property sector.
We also estimate overall REIT holdings of industrial genuine estate utilizing data from Capital IQ Pro. For the 2nd quarter of 2021, REITs comprise an estimated 9.4% of the overall CRE market. REITs tend to concentrate on institutional-quality residential or commercial properties that are newer and of higher quality than numerous other industrial residential or commercial properties that are owned by personal investors. We estimate the total worth of these "REIT-like" residential or commercial properties to be approximately 50% of the overall CRE market and that the REIT share of "REIT-like" residential or commercial properties is 18.7% for the second quarter of 2021.
Chart 1 shows a time series of the REIT share of the overall CRE market and the REIT share of the REIT-like CRE market.
Methodology
To approximate the size of the business realty market, we utilize a multi-step method based on the best offered information for each residential or commercial property sector.
- We begin by determining and approximating the number of systems (for multifamily) and total square video footage (for other residential or commercial property sectors) by residential or commercial property sector and residential or commercial property quality type for the biggest 200 markets in the U.S. This procedure utilized CoStar's data export function covering the Office, Retail, Multifamily, and Industrial residential or commercial property sectors that offered overall square video footage and systems along with the average price per square foot (for office, retail, and industrial) or per system (for multifamily).
- The details on square footage and typical price by residential or commercial property type (for retail: General Retail, Mall, Neighborhood Center, and Strip Center; for industrial: Flex, Logistics, and Specialized), CoStar quality ranking (1-2 Star, 3 Star, 4-5 Star), and groups of metro areas (entrance cities, next biggest 48 metro locations, and all other city locations) permit more analysis of the geographical circulation of industrial property across the nation and quotes of institutional-grade commercial property versus all other. These quotes in turn work for computing the REIT share of business realty by residential or commercial property sector.
- To approximate worths for the Healthcare and Hospitality sectors where we do not have disaggregated totals offered from CoStar, we use the values from an aggregate analysis of business property market size carried out by CoStar, upgraded utilizing aggregate growth rate assumptions.
- To approximate the value of Data Centers and Towers, we estimate the total worth of REITs in these residential or commercial property sectors and earn approximately cover the entire market utilizing presumptions on the REIT percentage of these sectors (50% for Data Centers and 75% for Towers). Recent Nareit-sponsored research on cell tower REITs highlights their significance in the CRE market. The computed value for Data Centers is subtracted from the Industrial total, as it is consisted of in the CoStar estimate of total square footage of Industrial residential or commercial properties.
- We approximate the REIT share of the business property market by utilizing information from S&P Capital IQ Pro on the Real Estate Value of REITs. We accumulate the total Real Estate Value for the most recent quarter and divide by the total value of the CRE market.
- To establish a time series for REIT share, we utilize observed information on the overall size of the CRE market considering that 2012. For several years before 2012, we assume an 8% growth in overall value for each year returning to 1995. For the years 2007 - 2011, we follow various conventions to account for the impacts of the Great Financial Crisis. In 2007, we approximate that the overall CRE value declined the very same percent as REITs. This percent decline is the same for both components in 2008. In 2009 - 2011, both the overall market and the REIT worths increase to 1/4, 1/2, and 3/4 of the method to the 2012 worth, respectively.
- In addition to approximating the REIT share of the total market, we likewise approximate the REIT share of 'REIT-like residential or commercial properties.' REITs do not own numerous older, lower quality, or smaller sized residential or commercial properties that are owned by personal financiers. Therefore, we estimate that half of the overall market is "REIT-like" residential or commercial properties and we divided the REIT value by that number to estimate the REIT share of "REIT-like" residential or commercial properties.