Estimating the Size of the Commercial Real Estate Market in the U.S.

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The estimated total dollar worth of industrial realty was $20.7 trillion since 2021: Q2.

Highlights

This research note sums up a study by Nareit mainly using information from CoStar that estimates the overall dollar value of business real estate was $20.7 trillion since 2021: Q2. This research study updates and constructs upon the approach for Nareit's previous estimates of the industrial genuine estate market.

Table 1 sums up the estimates by residential or commercial property sector. The total quote is $20.7 trillion. Measurement problems with the underlying information recommend that the actual value of total CRE might vary from this point quote. An evaluation of these sources of unpredictability suggests that the real worth is extremely most likely to fall within a series of $18 - $22 trillion. These estimates are based on a bottom-up approach using the very best available data for each residential or commercial property sector.

We likewise approximate total REIT holdings of business realty utilizing information from Capital IQ Pro. For the second quarter of 2021, REITs make up an estimated 9.4% of the total CRE market. REITs tend to concentrate on institutional-quality residential or commercial properties that are more recent and of greater quality than many other industrial residential or commercial properties that are owned by personal investors. We approximate the overall value of these "REIT-like" residential or commercial properties to be roughly 50% of the overall CRE market which the REIT share of "REIT-like" residential or commercial properties is 18.7% for the 2nd 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 commercial genuine estate market, we use a multi-step approach based upon the very best available data for each residential or commercial property sector.

- We begin by identifying and estimating the variety of units (for multifamily) and total square 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 process utilized CoStar's information export function covering the Office, Retail, Multifamily, and Industrial residential or commercial property sectors that supplied overall square footage and systems in addition to the typical price per square foot (for office, retail, and industrial) or per system (for multifamily).
- The details on square video footage and typical cost by residential or commercial property type (for retail: General Retail, Mall, Neighborhood Center, and Strip Center; for industrial: Flex, Logistics, and Specialized), CoStar quality rating (1-2 Star, 3 Star, 4-5 Star), and groups of city areas (entrance cities, next largest 48 metro areas, and all other metro areas) permit further analysis of the geographical distribution of industrial property across the nation and quotes of institutional-grade commercial property versus all other. These estimates in turn work for determining the REIT share of industrial property by residential or commercial property sector.
- To estimate worths for the Health Care and Hospitality sectors where we do not have disaggregated overalls available from CoStar, we utilize the values from an aggregate analysis of business property market size performed by CoStar, upgraded utilizing aggregate growth rate presumptions.
- To estimate the value of Data Centers and Towers, we estimate the overall value of REITs in these residential or commercial property sectors and gross up to cover the whole market utilizing presumptions on the REIT portion of these sectors (50% for Data Centers and 75% for Towers). Recent Nareit-sponsored research study on cell tower REITs highlights their importance in the CRE market. The determined value for Data Centers is subtracted from the Industrial overall, as it is included in the CoStar price quote of overall square video footage of Industrial residential or commercial properties.
- We estimate the REIT share of the business genuine estate market by utilizing data from S&P Capital IQ Pro on the Real Estate Value of REITs. We include up the overall Real Estate Value for the most current quarter and divide by the overall worth of the CRE market.
- To develop a time series for REIT share, we use observed information on the overall size of the CRE market since 2012. For several years before 2012, we presume an 8% development in total worth for each year going back to 1995. For the years 2007 - 2011, we follow various conventions to represent the impacts of the Great Financial Crisis. In 2007, we estimate that the total CRE value declined the very same percent as REITs. This percent decrease 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 value, 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 many older, lower quality, or smaller residential or commercial properties that are owned by private financiers. Therefore, we estimate that half of the total market is "REIT-like" residential or commercial properties and we divided the REIT worth by that number to estimate the REIT share of "REIT-like" residential or commercial properties.