Estimating the Size of the Commercial Real Estate Market in the U.S.
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The estimated overall dollar value of commercial real estate was $20.7 trillion since 2021: Q2.
Highlights
This research note sums up a study by Nareit mainly utilizing information from CoStar that approximates the overall dollar value of commercial real estate was $20.7 trillion since 2021: Q2. This research study updates and builds upon the methodology for Nareit's previous quotes of the commercial property market.
Table 1 summarizes the estimates by residential or commercial property sector. The total price quote is $20.7 trillion. Measurement problems with the underlying information suggest that the real worth of overall CRE might vary from this point price quote. An examination of these sources of unpredictability suggests that the real value is highly most likely to fall within a variety of $18 - $22 trillion. These estimates are based on a bottom-up technique utilizing the finest readily available information for each residential or commercial property sector.
We likewise approximate total REIT holdings of commercial realty using data from Capital IQ Pro. For the 2nd quarter of 2021, REITs make up an approximated 9.4% of the overall CRE market. REITs tend to concentrate on institutional-quality residential or commercial properties that are more recent and of higher quality than lots of other commercial residential or commercial properties that are owned by private investors. We approximate the total value of these "REIT-like" residential or commercial properties to be roughly 50% of the total 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 reveals 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 industrial property market, we use a multi-step technique based on the best available information for each residential or commercial property sector.
- We start by determining and estimating the number of units (for multifamily) and overall square footage (for other residential or commercial property sectors) by residential or commercial property sector and residential or commercial property quality type for the biggest 200 markets in the U.S. This process used CoStar's data export function covering the Office, Retail, Multifamily, and Industrial residential or commercial property sectors that supplied total square video footage and systems along with the typical price per square foot (for workplace, retail, and commercial) 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 city areas (gateway cities, next biggest 48 metro areas, and all other city locations) allow for more analysis of the geographic distribution of industrial property throughout the nation and price quotes of institutional-grade industrial property versus all other. These price quotes in turn are helpful for computing the REIT share of commercial real estate by residential or commercial property sector.
- To estimate worths for the Health Care and Hospitality sectors where we do not have actually disaggregated totals offered from CoStar, we utilize the worths from an aggregate analysis of commercial genuine estate market size performed by CoStar, upgraded using aggregate growth rate presumptions.
- To estimate the worth of Data Centers and Towers, we approximate the total worth of REITs in these residential or commercial property sectors and earn as much as cover the whole market using assumptions 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 calculated value for Data Centers is subtracted from the Industrial overall, as it is consisted of in the CoStar quote of total square video of Industrial residential or commercial properties.
- We approximate the REIT share of the commercial realty market by utilizing information from S&P Capital IQ Pro on the Real Estate Value of REITs. We build up the total Real Estate Value for the most recent quarter and divide by the total value of the CRE market.
- To develop a time series for REIT share, we utilize observed data on the total size of the CRE market since 2012. For many years before 2012, we assume an 8% development in total worth for each year returning to 1995. For the years 2007 - 2011, we follow different conventions to represent the impacts of the Great Financial Crisis. In 2007, we estimate that the total CRE value declined the exact same percent as REITs. This percent decline is the very same for both parts in 2008. In 2009 - 2011, both the total 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 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 numerous older, lower quality, or smaller sized 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 estimate the REIT share of "REIT-like" residential or commercial properties.
