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 summarizes a study by Nareit mainly utilizing data from CoStar that approximates the overall dollar worth of commercial realty was $20.7 trillion since 2021: Q2. This study updates and constructs upon the approach for Nareit's previous quotes of the industrial realty market.

Table 1 sums up the price quotes by residential or commercial property sector. The overall price quote is $20.7 trillion. Measurement problems 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 recommends that the real worth is highly likely to fall within a variety of $18 - $22 trillion. These estimates are based on a bottom-up approach utilizing the very best readily available information for each residential or commercial property sector.

We likewise estimate total REIT holdings of business property utilizing data from Capital IQ Pro. For the second 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 newer and of higher quality than many other commercial residential or commercial properties that are owned by private 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 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 business genuine estate market, we use a multi-step method based upon the very best readily available data for each residential or commercial property sector.

- We start by recognizing and approximating the variety of systems (for multifamily) and total 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 utilized CoStar's information export function covering the Office, Retail, Multifamily, and Industrial residential or commercial property sectors that offered total square video footage and systems in addition to the average rate per square foot (for workplace, retail, and commercial) or per unit (for multifamily).
- The information on square video footage and average price 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 metro areas (entrance cities, next biggest 48 metro areas, and all other metro locations) enable for additional analysis of the geographical circulation of commercial realty across the nation and estimates of institutional-grade business realty versus all other. These estimates in turn work for computing the REIT share of commercial genuine estate 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 commercial property market size conducted by CoStar, upgraded using aggregate growth rate presumptions.
- To approximate the value of Data Centers and Towers, we estimate the total worth of REITs in these residential or commercial property sectors and gross up to cover the whole market using presumptions 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 determined value for Data Centers is subtracted from the Industrial overall, as it is included 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 using data from S&P Capital IQ Pro on the Real Estate Value of REITs. We accumulate the total Real Estate Value for the most recent quarter and divide by the total 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 given that 2012. For years before 2012, we assume an 8% development in total worth for each year going back to 1995. For the years 2007 - 2011, we follow various conventions to represent the effects of the Great Financial Crisis. In 2007, we estimate that the overall CRE worth decreased the same percent as REITs. This percent decline is the same for both components in 2008. In 2009 - 2011, both the total market and the REIT values increase to 1/4, 1/2, and 3/4 of the way to the 2012 value, respectively.
- In addition to approximating the REIT share of the overall 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 personal financiers. 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 estimate the REIT share of "REIT-like" residential or commercial properties.