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 approximated overall dollar worth of commercial genuine estate was $20.7 trillion as of 2021: Q2.
Highlights
This research study note sums up a study by Nareit mainly utilizing data from CoStar that estimates the total dollar worth of industrial property was $20.7 trillion as of 2021: Q2. This research study updates and builds on the approach for Nareit's previous estimates 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 issues with the underlying data suggest that the actual worth of overall CRE might vary from this point estimate. An examination of these sources of unpredictability recommends that the actual worth is highly likely to fall within a series of $18 - $22 trillion. These estimates are based on a bottom-up method using the best offered information for each residential or commercial property sector.
We likewise estimate overall REIT holdings of industrial genuine estate using 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 focus on institutional-quality residential or commercial properties that are newer and of greater quality than lots of other commercial residential or commercial properties that are owned by private financiers. We estimate the total value 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 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 realty market, we utilize a multi-step technique based upon the best readily available information for each residential or commercial property sector.
- We begin by determining and estimating the number of systems (for multifamily) and overall square video (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 data export function covering the Office, Retail, Multifamily, and Industrial residential or commercial property sectors that offered total square footage and systems along with the average rate per square foot (for office, retail, and industrial) or per unit (for multifamily).
- The information on square footage and typical rate by residential or commercial property type (for retail: General Retail, Mall, Neighborhood Center, and Strip Center; for industrial: Flex, Logistics, and Specialized), CoStar quality score (1-2 Star, 3 Star, 4-5 Star), and groups of metro areas (entrance cities, next largest 48 city areas, and all other metro areas) enable further analysis of the geographic circulation of business property throughout the nation and quotes of institutional-grade business property versus all other. These price quotes in turn work for calculating the REIT share of business real estate by residential or commercial property sector.
- To estimate values for the Health Care and Hospitality sectors where we do not have disaggregated overalls available from CoStar, we use the worths from an aggregate analysis of industrial property market size performed by CoStar, upgraded utilizing aggregate development rate presumptions.
- To estimate the value of Data Centers and Towers, we approximate the overall value of REITs in these residential or commercial property sectors and gross as much as cover the whole market using 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 importance in the CRE market. The computed value for Data Centers is subtracted from the Industrial overall, as it is included in the CoStar price quote of overall square footage of Industrial residential or commercial properties.
- We estimate the REIT share of the industrial property market by using data from S&P Capital IQ Pro on the Real Estate Value of REITs. We accumulate the overall Property Value for the most recent quarter and divide by the total worth of the CRE market.
- To develop a time series for REIT share, we utilize observed data on the total size of the CRE market because 2012. For several years before 2012, we presume an 8% development in total value for each year going back to 1995. For the years 2007 - 2011, we follow various conventions to represent the results of the Great Financial Crisis. In 2007, we estimate that the total CRE worth decreased the very same percent as REITs. This percent decrease is the same for both 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 overall market, we also estimate the REIT share of 'REIT-like residential or commercial properties.' REITs do not own lots of older, lower quality, or smaller residential or commercial properties that are owned by personal 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.
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