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

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The approximated total dollar value of commercial real estate was $20.7 trillion since 2021: Q2.

Highlights

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

Table 1 summarizes the price quotes by residential or commercial property sector. The overall price quote is $20.7 trillion. Measurement issues with the underlying data suggest that the actual value of total CRE may vary from this point price quote. An evaluation of these sources of uncertainty recommends that the actual value is highly most likely to fall within a series of $18 - $22 trillion. These price quotes are based upon a bottom-up technique using the finest readily available information for each residential or commercial property sector.

We also estimate total REIT holdings of commercial real estate utilizing data from Capital IQ Pro. For the second quarter of 2021, REITs make up an estimated 9.4% of the overall CRE market. REITs tend to concentrate on institutional-quality residential or commercial properties that are newer and of higher quality than numerous other business residential or commercial properties that are owned by private investors. We approximate the total worth 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 second 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 industrial realty market, we use a multi-step method based upon the best readily available data for each residential or commercial property sector.

- We begin by identifying and approximating the variety of units (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 information export function covering the Office, Retail, Multifamily, and Industrial residential or commercial property sectors that offered total square video footage and systems as well as the typical rate per square foot (for office, retail, and industrial) 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 score (1-2 Star, 3 Star, 4-5 Star), and groups of city areas (gateway cities, next biggest 48 metro locations, and all other city locations) enable further analysis of the geographic distribution of business real estate across the country and estimates of institutional-grade commercial property versus all other. These quotes in turn are beneficial for computing the REIT share of industrial property by residential or commercial property sector.
- To estimate worths for the Healthcare and Hospitality sectors where we do not have actually disaggregated totals offered from CoStar, we use the values from an aggregate analysis of business property market size conducted by CoStar, upgraded utilizing aggregate development rate assumptions.
- To estimate the worth of Data Centers and Towers, we estimate the overall worth of REITs in these residential or commercial property sectors and earn up to 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 determined worth for Data Centers is deducted from the Industrial overall, as it is included in the CoStar quote of total square footage of Industrial residential or commercial properties.
- We estimate the REIT share of the industrial real estate market by using data from S&P Capital IQ Pro on the Real Estate Value of REITs. We build up the total Real Estate Value for the most current quarter and divide by the total value of the CRE market.
- To develop a time series for REIT share, we use observed data on the total size of the CRE market since 2012. For many years before 2012, we assume an 8% growth in total value for each year going back to 1995. For the years 2007 - 2011, we follow different conventions to account for the effects of the Great Financial Crisis. In 2007, we estimate that the total CRE worth decreased the very same percent as REITs. This percent decline is the same for both elements in 2008. In 2009 - 2011, both the overall market and the REIT values increase to 1/4, 1/2, and 3/4 of the method to the 2012 worth, 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 personal investors. Therefore, we approximate 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.