Estimating the Size of the Commercial Real Estate Market in the U.S.

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The estimated total dollar value of business genuine estate was $20.7 trillion since 2021: Q2.

Highlights

This research note summarizes a study by Nareit primarily utilizing information from CoStar that estimates the overall dollar worth of commercial property was $20.7 trillion since 2021: Q2. This research study updates and builds on the method for Nareit's previous estimates of the business realty market.

Table 1 summarizes the price quotes by residential or commercial property sector. The total price quote is $20.7 trillion. Measurement issues with the underlying data recommend that the real value of overall CRE might differ from this point quote. An examination of these sources of uncertainty suggests that the actual value is highly likely to fall within a series of $18 - $22 trillion. These price quotes are based on a bottom-up technique utilizing the very best readily available data for each residential or commercial property sector.

We also estimate total REIT holdings of commercial realty using information 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 more recent and of higher quality than numerous other business residential or commercial properties that are owned by personal investors. We estimate the overall value of these "REIT-like" residential or commercial properties to be approximately 50% of the total CRE market and that 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 total CRE market and the REIT share of the REIT-like CRE market.

Methodology

To approximate the size of the commercial realty market, we use a multi-step technique based upon the best readily available information for each residential or commercial property sector.

- We begin by recognizing and approximating the number of systems (for multifamily) and overall square video 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 procedure used CoStar's data export function covering the Office, Retail, Multifamily, and Industrial residential or commercial property sectors that provided overall square footage and systems as well as the typical price per square foot (for workplace, retail, and commercial) or per unit (for multifamily).
- The details on square video and average 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 city locations (gateway cities, next largest 48 city locations, and all other metro areas) enable for additional analysis of the geographic distribution of industrial property throughout the country and estimates of institutional-grade business genuine estate versus all other. These estimates in turn are useful for computing the REIT share of industrial property by residential or commercial property sector.
- To approximate values for the Healthcare and Hospitality sectors where we do not have disaggregated overalls readily available from CoStar, we utilize the worths from an aggregate analysis of industrial genuine estate market size conducted by CoStar, upgraded using aggregate growth rate presumptions.
- To approximate the value of Data Centers and Towers, we approximate the total value of REITs in these residential or commercial property sectors and earn as much as cover the entire market utilizing assumptions 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 significance in the CRE market. The calculated worth for Data Centers is deducted from the Industrial overall, 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 property 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 current quarter and divide by the overall worth of the CRE market.
- To develop a time series for REIT share, we use observed information on the total size of the CRE market because 2012. For many years before 2012, we presume an 8% growth in total worth for each year going back to 1995. For the years 2007 - 2011, we follow various conventions to account for the effects of the Great Financial Crisis. In 2007, we approximate that the total CRE worth declined the very same percent as REITs. This percent decrease is the very same for both parts 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 estimating the REIT share of the overall market, we likewise estimate 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 private financiers. 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.