Estimating the Size of the Commercial Real Estate Market in the U.S.
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The approximated overall dollar value of industrial realty was $20.7 trillion since 2021: Q2.
Highlights
This research study note sums up a study by Nareit mainly using information from CoStar that estimates the total dollar value of business real estate was $20.7 trillion as of 2021: Q2. This study updates and builds on the methodology for Nareit's previous price quotes of the business realty market.
Table 1 summarizes the price quotes by residential or commercial property sector. The total quote is $20.7 trillion. Measurement concerns with the underlying data suggest that the real value of total CRE might differ from this point quote. An assessment of these sources of uncertainty suggests that the actual value is extremely likely to fall within a variety of $18 - $22 trillion. These price quotes are based on a bottom-up method using the very best offered data for each residential or commercial property sector.
We likewise estimate total REIT holdings of industrial genuine estate using data 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 focus on institutional-quality residential or commercial properties that are newer and of greater quality than lots of other business residential or commercial properties that are owned by personal investors. We approximate the total value of these "REIT-like" residential or commercial properties to be approximately 50% of the total CRE market which 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 estimate the size of the commercial property market, we use a multi-step technique based upon the very best available data for each residential or commercial property sector.
- We begin by determining and estimating the number 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 largest 200 markets in the U.S. This process used CoStar's information export function covering the Office, Retail, Multifamily, and Industrial residential or commercial property sectors that supplied total square video 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 footage and average cost 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 city areas (gateway cities, next biggest 48 city areas, and all other city areas) enable additional analysis of the geographic distribution of business real estate across the country and quotes of institutional-grade commercial genuine estate versus all other. These quotes in turn are useful for computing the REIT share of business property by residential or commercial property sector.
- To estimate values for the Healthcare and Hospitality sectors where we do not have disaggregated overalls available from CoStar, we use the worths from an aggregate analysis of business property market size performed by CoStar, updated utilizing aggregate growth rate presumptions.
- To approximate the value of Data Centers and Towers, we approximate the overall worth of REITs in these residential or commercial property sectors and earn as much as 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 importance in the CRE market. The calculated worth for Data Centers is subtracted from the Industrial total, as it is consisted of in the CoStar estimate of total 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 Real Estate Value for the most current quarter and divide by the total worth of the CRE market.
- To establish a time series for REIT share, we utilize observed information on the overall size of the CRE market given that 2012. For many 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 approximate that the overall CRE value declined the exact same percent as REITs. This percent decline is the exact same for both elements in 2008. In 2009 - 2011, both the overall market and the REIT worths increase to 1/4, 1/2, and 3/4 of the way to the 2012 value, respectively.
- In addition to approximating the REIT share of the overall market, we likewise 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 private financiers. Therefore, we approximate that half of the overall 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.
