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 value of business realty was $20.7 trillion as of 2021: Q2.
Highlights
This research note sums up a research study by Nareit primarily using information from CoStar that approximates the overall dollar worth of commercial realty was $20.7 trillion as of 2021: Q2. This research study updates and builds on the method for Nareit's previous price quotes of the industrial realty market.
Table 1 sums up the price quotes by residential or commercial property sector. The total quote is $20.7 trillion. Measurement concerns with the underlying information suggest that the actual value of overall CRE may differ from this point quote. An evaluation of these sources of unpredictability recommends that the real worth is highly most likely to fall within a series of $18 - $22 trillion. These price quotes are based upon a bottom-up method utilizing the very best readily available data for each residential or commercial property sector.
We likewise estimate overall REIT holdings of industrial property using information from Capital IQ Pro. For the second quarter of 2021, REITs comprise 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 industrial residential or commercial properties that are owned by personal investors. We estimate the overall worth of these "REIT-like" residential or commercial properties to be approximately 50% of the overall CRE market which 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 total 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 approach based on the very best available data for each residential or commercial property sector.
- We begin by determining and approximating the variety 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 biggest 200 markets in the U.S. This procedure used CoStar's information export function covering the Office, Retail, Multifamily, and Industrial residential or commercial property sectors that supplied total square video footage and systems in addition to the typical rate per square foot (for office, retail, and commercial) or per system (for multifamily).
- The information on square video 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 score (1-2 Star, 3 Star, 4-5 Star), and groups of city areas (gateway cities, next biggest 48 metro areas, and all other city areas) enable additional analysis of the geographic distribution of business property across the country and estimates of institutional-grade commercial real estate versus all other. These quotes in turn are beneficial for calculating the REIT share of industrial genuine estate by residential or commercial property sector.
- To estimate worths for the Health Care and Hospitality sectors where we do not have disaggregated totals offered from CoStar, we use the worths from an aggregate analysis of industrial real estate market size performed by CoStar, updated using aggregate growth rate assumptions.
- To estimate the worth 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 on cell tower REITs highlights their importance in the CRE market. The computed worth for Data Centers is subtracted from the Industrial total, as it is included in the CoStar estimate of total square video footage of Industrial residential or commercial properties.
- We approximate the REIT share of the industrial genuine estate market by utilizing data 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 overall worth of the CRE market.
- To establish a time series for REIT share, we use observed information on the total size of the CRE market considering that 2012. For years before 2012, we presume an 8% development in overall value for each year returning 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 decreased the same percent as REITs. This percent decrease is the exact same for both parts in 2008. In 2009 - 2011, both the total market and the REIT values increase to 1/4, 1/2, and 3/4 of the method 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 numerous older, lower quality, or smaller residential or commercial properties that are owned by personal investors. Therefore, we 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.
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