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

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

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The estimated total dollar worth of commercial property was $20.7 trillion since 2021: Q2.

Highlights

This research note sums up a study by Nareit primarily utilizing information from CoStar that estimates the total dollar value of commercial property was $20.7 trillion since 2021: Q2. This research study updates and builds on the approach for Nareit’s previous price quotes of the industrial realty market.

Table 1 summarizes the price quotes by residential or commercial property sector. The total price quote is $20.7 trillion. Measurement concerns with the underlying data suggest that the real worth of overall CRE might differ from this point . An examination of these sources of unpredictability suggests that the real value is highly most likely to fall within a series of $18 – $22 trillion. These estimates are based upon a bottom-up technique utilizing the finest available data for each residential or commercial property sector.

We also approximate overall REIT holdings of business realty utilizing information from Capital IQ Pro. For the second quarter of 2021, REITs comprise an approximated 9.4% of the total CRE market. REITs tend to focus on institutional-quality residential or commercial properties that are newer and of higher quality than many other commercial residential or commercial properties that are owned by private financiers. We estimate the overall worth of these “REIT-like” residential or commercial properties to be roughly 50% of the total 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 business property market, we use a multi-step method based on the best readily available data for each residential or commercial property sector.

– We start by determining and approximating the variety of units (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 largest 200 markets in the U.S. This procedure used CoStar’s information export function covering the Office, Retail, Multifamily, and Industrial residential or commercial property sectors that offered overall square video footage and systems as well as the average cost per square foot (for office, retail, and industrial) or per unit (for multifamily).
– The information on square video footage and typical rate by residential or commercial property type (for retail: General Retail, Mall, Neighborhood Center, and Strip Center; for commercial: Flex, Logistics, and Specialized), CoStar quality ranking (1-2 Star, 3 Star, 4-5 Star), and groups of metro locations (entrance cities, next biggest 48 city locations, and all other metro locations) permit further analysis of the geographical circulation of industrial genuine estate throughout the nation and quotes of institutional-grade commercial realty versus all other. These estimates in turn are helpful for calculating the REIT share of industrial realty by residential or commercial property sector.
– To approximate values for the Healthcare and Hospitality sectors where we do not have actually disaggregated totals readily available from CoStar, we utilize the worths from an aggregate analysis of business genuine estate market size carried out by CoStar, upgraded utilizing aggregate growth rate assumptions.
– To approximate the worth of Data Centers and Towers, we approximate the total value of REITs in these residential or commercial property sectors and earn approximately cover the entire market using presumptions on the REIT percentage of these sectors (50% for Data Centers and 75% for Towers). Recent Nareit-sponsored research study on cell tower REITs highlights their significance in the CRE market. The calculated worth for Data Centers is deducted from the Industrial total, as it is consisted of in the CoStar price quote of total square video footage of Industrial residential or commercial properties.
– We estimate the REIT share of the business property market by utilizing data from S&P Capital IQ Pro on the Real Estate Value of REITs. We build up the total Real Estate Value for the most current quarter and divide by the total value of the CRE market.
– To develop a time series for REIT share, we use observed information on the overall size of the CRE market considering that 2012. For many years before 2012, we presume an 8% development in overall value for each year going back to 1995. For the years 2007 – 2011, we follow different conventions to account for the results 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 worth, respectively.
– In addition to estimating the REIT share of the overall market, we likewise approximate the REIT share of ‘REIT-like residential or commercial properties.’ REITs do not own numerous older, lower quality, or smaller residential or commercial properties that are owned by private investors. Therefore, we approximate that half of the total market is “REIT-like” residential or commercial properties and we divided the REIT value by that number to approximate the REIT share of “REIT-like” residential or commercial properties.