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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 worth of business real estate was $20.7 trillion as of 2021: Q2.

Highlights

This research study note sums up a research study by Nareit primarily utilizing data from CoStar that approximates the total dollar value of industrial property was $20.7 trillion as of 2021: Q2. This study updates and builds on the methodology for Nareit's previous quotes of the industrial property market.

Table 1 sums up the price quotes by residential or commercial property sector. The total price quote is $20.7 trillion. Measurement concerns with the underlying information suggest that the real value of total CRE may differ from this point price quote. An assessment of these sources of uncertainty recommends that the actual value is extremely likely to fall within a range of $18 - $22 trillion. These estimates are based on a bottom-up method using the best available information for each residential or commercial property sector.

We also estimate overall REIT holdings of industrial realty utilizing data from Capital IQ Pro. For the 2nd quarter of 2021, REITs comprise an estimated 9.4% of the total CRE market. REITs tend to concentrate on institutional-quality residential or commercial properties that are newer and of higher quality than lots of other industrial residential or commercial properties that are owned by personal financiers. We estimate the total value of these "REIT-like" residential or commercial properties to be roughly 50% of the overall CRE market and that 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
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To estimate the size of the industrial genuine estate market, we utilize a multi-step method based on the finest offered data for each residential or commercial property sector.

- We start by recognizing and estimating the number of systems (for multifamily) and overall square video footage (for other 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 supplied total square video footage and units in addition to the average cost per square foot (for workplace, retail, and commercial) or per system (for multifamily).

• The information 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 metro locations (entrance cities, next largest 48 metro locations, and all other city areas) allow for more analysis of the geographical circulation of business property throughout the nation and price quotes of institutional-grade industrial realty versus all other. These price quotes in turn are beneficial for determining the REIT share of business property by residential or commercial property sector.
• To approximate values for the Healthcare and Hospitality sectors where we do not have actually disaggregated overalls readily available from CoStar, we utilize the worths from an aggregate analysis of commercial property market size performed by CoStar, updated using aggregate growth rate presumptions.
• To estimate the value of Data Centers and Towers, we estimate the overall worth of REITs in these residential or commercial property sectors and earn approximately cover the entire market using presumptions on the REIT portion 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 deducted from the Industrial total, as it is included in the CoStar estimate of overall square video of Industrial residential or commercial properties.
• We estimate the REIT share of the business realty market by utilizing information from S&P Capital IQ Pro on the Real Estate Value of REITs. We build up the overall Property Value for the most recent quarter and divide by the overall value of the CRE market.
• To develop a time series for REIT share, we use observed data on the total size of the CRE market because 2012. For several years before 2012, we assume an 8% growth in overall value for each year going back to 1995. For the years 2007 - 2011, we follow different conventions to account for the effects of the Great Financial Crisis. In 2007, we estimate that the overall CRE worth decreased the very same percent as REITs. This percent decrease is the very 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 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 sized residential or commercial properties that are owned by personal investors. Therefore, we estimate that half of the overall 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.