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

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The estimated overall dollar worth of business realty was $20.7 trillion since 2021: Q2.

Highlights

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

Table 1 sums up the estimates by residential or commercial property sector. The total price quote is $20.7 trillion. Measurement issues with the underlying data suggest that the actual worth of overall CRE may differ from this point price quote. An examination of these sources of uncertainty suggests that the actual value is highly likely to fall within a variety of $18 - $22 trillion. These price quotes are based upon a bottom-up method using the finest offered information for each residential or commercial property sector.

We likewise estimate total REIT holdings of industrial real estate using data from Capital IQ Pro. For the second quarter of 2021, REITs comprise an estimated 9.4% of the overall CRE market. REITs tend to focus on institutional-quality residential or commercial properties that are newer and of greater quality than lots of other commercial residential or commercial properties that are owned by private investors. We approximate the overall worth of these "REIT-like" residential or commercial properties to be roughly 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 estimate the size of the business real estate market, we utilize a multi-step method based upon the finest readily available information for each residential or commercial property sector.

- We start by identifying and estimating the number of systems (for multifamily) and overall square footage (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 information export function covering the Office, Retail, Multifamily, and Industrial residential or commercial property sectors that provided total square video and systems along with the typical rate per square foot (for office, retail, and industrial) or per system (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 commercial: Flex, Logistics, and Specialized), CoStar quality rating (1-2 Star, 3 Star, 4-5 Star), and groups of city locations (gateway cities, next biggest 48 city locations, and all other city areas) permit more analysis of the geographic distribution of business real estate throughout the country and quotes of institutional-grade commercial realty versus all other. These estimates in turn are helpful for calculating the REIT share of business real estate by residential or commercial property sector.
• To estimate values 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 business genuine estate market size carried out by CoStar, updated using aggregate growth rate assumptions.
• To estimate the worth 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 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 value in the CRE market. The computed worth for Data Centers is subtracted from the Industrial overall, as it is consisted of in the CoStar price quote of total square video footage of Industrial residential or commercial properties.
• We estimate the REIT share of the business 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 data on the overall size of the CRE market given that 2012. For 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 represent the effects of the Great Financial Crisis. In 2007, we approximate that the overall CRE worth declined the same percent as REITs. This percent decline is the very same for both components in 2008. In 2009 - 2011, both the overall market and the REIT worths 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 total market, we also approximate 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 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.