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 total dollar worth of commercial realty was $20.7 trillion since 2021: Q2.

Highlights

This research study note summarizes a study by Nareit mostly using information from CoStar that estimates the total dollar value of business realty was $20.7 trillion since 2021: Q2. This research study updates and develops upon the methodology for Nareit's previous quotes of the business real estate market.

Table 1 sums up the estimates by residential or commercial property sector. The overall estimate is $20.7 trillion. Measurement concerns with the underlying information suggest that the real worth of overall CRE may vary from this point estimate. An evaluation of these sources of unpredictability recommends that the actual worth is highly likely to fall within a range of $18 - $22 trillion. These quotes are based upon a bottom-up method utilizing the very best readily available information for each residential or commercial property sector.

We also approximate total REIT holdings of business realty utilizing information 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 industrial residential or commercial properties that are owned by private financiers. We approximate the overall value of these "REIT-like" residential or commercial properties to be approximately 50% of the overall 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 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 approximate the size of the commercial property market, we utilize a multi-step approach based upon the very best available information for each residential or commercial property sector.

- We start by determining and estimating the number 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 largest 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 in addition to the average cost per square foot (for office, retail, and industrial) or per system (for multifamily).
- The details on square footage and typical 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 rating (1-2 Star, 3 Star, 4-5 Star), and groups of metro areas (entrance cities, next largest 48 city locations, and all other city areas) enable for further analysis of the geographic distribution of business property across the country and estimates of institutional-grade industrial genuine estate versus all other. These estimates in turn work for computing the REIT share of business realty by residential or commercial property sector.
- To approximate values for the Healthcare and Hospitality sectors where we do not have actually disaggregated totals readily available from CoStar, we use the worths from an aggregate analysis of industrial realty market size carried out by CoStar, upgraded utilizing aggregate growth rate assumptions.
- To estimate the value of Data Centers and Towers, we approximate the total worth of REITs in these residential or commercial property sectors and gross approximately cover the whole market utilizing presumptions on the REIT portion of these sectors (50% for Data Centers and 75% for Towers). Recent Nareit-sponsored research study on cell tower REITs highlights their value in the CRE market. The determined worth for Data Centers is deducted from the Industrial overall, as it is consisted of in the CoStar estimate of overall square video footage of Industrial residential or commercial properties.
- We estimate the REIT share of the commercial property 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 overall value of the CRE market.
- To establish a time series for REIT share, we utilize observed data on the total size of the CRE market considering that 2012. For many years before 2012, we presume an 8% development in total value for each year going back to 1995. For the years 2007 - 2011, we follow different conventions to represent the effects of the Great Financial Crisis. In 2007, we estimate that the total CRE value declined the same percent as REITs. This percent decline is the 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 worth, respectively.
- In addition to estimating the REIT share of the total market, we also estimate the REIT share of 'REIT-like residential or commercial properties.' REITs do not own many older, lower quality, or smaller residential or commercial properties that are owned by private investors. Therefore, we estimate that half of the total 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.