Estimated $26.8 T U.S. CRE investable universe
- Institutional-quality represents $11.7 T (44%).
- Residential sectors dominate.
- Alternative sectors account for over 30%
WHY MEASURE THE INVESTABLE UNIVERSE?
The objective of this analysis is to provide financiers with a standard for the size and scale of the U.S. commercial realty (CRE) market, private residential or commercial property sectors and the "institutional" quality portion of the market. Approximately this point, released quotes on the size of the commercial real estate investable universe mostly focus on country-level international comparisons, taking a top-down method to approximate the size of the overall industrial realty market in each area. Existing literature does little to approximate the value of particular residential or commercial property types, let alone alternative residential or commercial property sectors. This report intends to fill this space in the business realty details landscape. Focusing solely on the United States, this report takes a bottom-up method, aggregating quotes for the size of specific commercial genuine estate residential or commercial property types to come to a worth for the general industrial real estate market. This method permits for segmentation between conventional and alternative residential or commercial property types, along with the ability to approximate the share of "institutional" genuine estate by sector.
Just how huge is the U.S. industrial property market? Although a seemingly simple question, estimating the size of the market is challenging for several factors: absence of information and openness (specifically for smaller sized, less-liquid and historically tracked residential or commercial property sectors), the commonly varied nature of the range of investible residential or commercial property types, and inconsistent industry definitions/classifications.
This analysis tries to answer the question through a two-step procedure: initially, estimating the gross asset worth of each residential or commercial property sector regardless of ownership, tenancy, period, size, area, and quality. After getting to an estimate for the general size of each sector, the 2nd action is to apply filters based on presumptions for developing class, vintage, size and/or market to additional narrow the investable universe to only include institutional properties - a subsegment of the investable universe that is limited to residential or commercial properties that fit the normal criteria of institutional financiers.
Sector sizes are approximated using the most trusted personal and public data sources for commercial property available, while likewise leveraging the knowledge and insights generated by Clarion and Rosen Consulting Group (RCG)'s experience in the market. For the majority of sectors, the approach to computing the overall value involves estimating the physical size of the sector, be it square video footage, systems, spaces, or beds; and integrating this with an approximated worth based on current deal information. Less traditionally tracked residential or commercial property sectors require more assumptions to approximate market-level and still-fluid market meanings. For residential or commercial property sectors where square footage or system counts were not available, total value was estimated utilizing information from third-party data sources or insights from market participants.
OUR ESTIMATE OF THE INVESTABLE UNIVERSE
We estimate the overall size of the U.S. CRE investable universe to be $26.8 trillion.
However, from an institutional investor's point of view, this is an overestimate, as it includes residential or commercial properties that fall below typical institutional requirements for developing size and quality. Similarly, this broad measure of the CRE universe includes a complete variety of locations, consisting of markets that are usually too small or insufficiently liquid for institutional financiers. As such, we filtered our investable universe worth using a precise series of presumptions to generate an "institutional" universe estimate. These filters differ by residential or commercial property sector and include constructing area, quality, age and size. Through this approach, the total size of the institutional universe is approximated to be $11.7 trillion. Note, that this is over ten times the size of the biggest industrial real estate index, the NCREIF Residential Or Commercial Property Index, (NPI).
We segment the investable universe into 2 broad classifications: Traditional and Alternative residential or commercial property types.
TRADITIONAL RESIDENTIAL OR COMMERCIAL PROPERTY TYPES MAINTAIN A DOMINANT SHARE
" Traditional" residential or commercial property sectors, that include industrial, multifamily, office, retail, and hotels are valued at $16.9 trillion, representing 63% of the investable market. Of this overall, 48%, or $8.2 trillion, is estimated to be of institutional quality. Within the $11.7 trillion institutional universe, traditional sectors then account for near 70% of the total. With a worth of $2.6 trillion, houses are the biggest conventional sector, accounting for more than one-fifth of the institutional universe.
ALTERNATIVE RESIDENTIAL OR COMMERCIAL PROPERTY TYPES ARE A CONSIDERABLE AND RISING COMPONENT
" Alternative" sectors, that include residential or commercial property types that have actually historically not been the primary focus of institutional financiers, account for the remaining 37% ($ 9.9 trillion) of the investable universe and $3.6 trillion, or 31%, of the institutional universe. The alternative subsegment of the CRE universe consists of the residential or commercial property types revealed below. Many noted REITs have actually been long-time players in the alternative sectors, but non-REIT investment has traditionally been limited. However, options are an increasing share of institutional-investor portfolios.
There are 3 identifiable groupings within the alternatives subset of the institutional market:
THE RESIDENTIAL SECTOR IS THE LARGEST COMPONENT
The residential alternatives organizing (inclusive of single-family leasings, student housing, age-restricted housing, and produced housing) is valued at $2 trillion, or 17% of the institutional universe. Within this group, the single-family rental sector (with 3.9 million homes) has actually the largest estimated value ($ 1.3 T), accounting for 11.5% of the institutional universe. The trainee housing sector is the next largest housing sector within the group, consisted of 2.4 million beds with an assessment of $277B, followed by age-restricted housing at $251B and made housing at $165B. Combining the domestic alternatives organizing with standard houses leads to the combined assessment of $4.7 trillion, making housing in a broader sense account for the lion's share (40%) of the institutional universe.
INDUSTRIAL AND ADJACENT SECTORS
Consisted of commercial outdoor storage (IOS) and cold storage warehousing, the industrial-adjacent group is valued at $187B, totaling up to 1.6% of the institutional universe. Combining this group with the conventional commercial market results in a worth of $1.5 trillion, or 13.1%, of the institutional universe.
HEALTHCARE SECTOR
The healthcare residential or commercial property types: life sciences, medical workplace, and senior citizens housing, have a combined estimated institutional worth of $839B, equating to 7.2% of the institutional universe. With a value of $413B, medical office represent near to half of the value of the combined health care sector, followed by senior housing ($ 302B) and life sciences ($ 125B).
AN EVOLVING CRE LANDSCAPE
The CRE financial investment landscape is evolving rapidly. Certain traditional sectors, such as workplace and retail, have dealt with structural obstacles in the last years, decreasing their total share of the investable universe by value; on the other hand, many alternative sectors have seen values increase substantially due to strong renter and investor cravings. As an outcome, the share of capital streaming into the alternative sectors has increased substantially. Investments in alternative CRE sectors totaled up to $14.2 B in transaction volume over the previous 4 quarters, accounting for 16% of total CRE volume, well above the share given that 2014 of 13%, according to MSCI Real Capital Analytics.
Institutional investor interest in the alternative sectors has actually grown as well. The alternative sector share of the NCREIF Open-End Diversified Core Equity Index (ODCE) has actually increased from around 4% in 2017 to 12.9% since 2024 Q2, led by investments in self-storage and life sciences - the biggest alternative residential or commercial property sectors in the ODCE portfolio.
