The U.S. Commercial Real Estate Investable Universe
Estimated $26.8 T U.S. CRE investable universe
- Institutional-quality represents $11.7 T (44%).
- Residential sectors control.
- Alternative sectors account for over 30%
myplace.co.nz
WHY MEASURE THE INVESTABLE UNIVERSE?
The goal of this analysis is to supply investors with a benchmark for the size and scale of the U.S. commercial realty (CRE) market, individual residential or commercial property sectors and the "institutional" quality portion of the marketplace. Up to this point, published estimates on the size of the commercial realty investable universe mainly focus on country-level international contrasts, taking a top-down approach to approximate the size of the total commercial real estate market in each region. Existing literature does little to estimate the value of specific residential or commercial property types, let alone alternative residential or commercial property sectors. This report aims to fill this space in the industrial realty details landscape. Focusing specifically on the United States, this report takes a bottom-up method, aggregating price quotes for the size of specific business property residential or commercial property types to reach a value for the overall business realty market. This approach enables segmentation in between standard and alternative residential or commercial property types, along with the ability to estimate the share of "institutional" property by sector.
Just how big is the U.S. market? Although a seemingly simple question, approximating the size of the market is challenging for several reasons: absence of data and transparency (specifically for smaller, less-liquid and historically tracked residential or commercial property sectors), the extensively varied nature of the series of investible residential or commercial property types, and inconsistent industry definitions/classifications.
This analysis tries to answer the question through a two-step procedure: first, approximating the gross possession value of each residential or commercial property sector despite ownership, occupancy, period, size, place, and quality. After coming to an estimate for the total size of each sector, the 2nd action is to apply filters based on assumptions for constructing class, vintage, size and/or market to additional narrow the investable universe to just include institutional possessions - a subsegment of the investable universe that is restricted to residential or commercial properties that fit the normal requirements of institutional investors.
Sector sizes are estimated using the most trustworthy personal and public information sources for commercial property offered, while likewise leveraging the knowledge and insights generated by Clarion and Rosen Consulting Group (RCG)'s experience in the market. For a lot of sectors, the method to computing the general worth involves estimating the physical size of the sector, be it square video, units, spaces, or beds; and integrating this with an approximated worth based upon current deal data. Less traditionally tracked residential or commercial property sectors require more assumptions to estimate market-level and still-fluid industry meanings. For residential or commercial property sectors where square footage or system counts were not readily available, total value was estimated utilizing information from third-party data sources or insights from market participants.
OUR ESTIMATE OF THE INVESTABLE UNIVERSE
We approximate the total size of the U.S. CRE investable universe to be $26.8 trillion.
However, from an institutional financier's perspective, this is an overestimate, as it includes residential or commercial properties that fall listed below common institutional standards for developing size and quality. Similarly, this broad procedure of the CRE universe consists of a full variety of locations, consisting of markets that are normally too little or insufficiently liquid for institutional investors. As such, we filtered our investable universe value utilizing a precise series of assumptions to create an "institutional" universe estimate. These filters vary by residential or commercial property sector and consist of building location, quality, age and size. Through this technique, the total size of the institutional universe is estimated to be $11.7 trillion. Note, that this is over 10 times the size of the largest industrial genuine estate index, the NCREIF Residential Or Commercial Property Index, (NPI).
We section the investable universe into 2 broad classifications: Traditional and Alternative residential or commercial property types.
TRADITIONAL RESIDENTIAL OR COMMERCIAL PROPERTY TYPES MAINTAIN A DOMINANT SHARE
" Traditional" residential or commercial property sectors, that include commercial, multifamily, office, retail, and hotels are valued at $16.9 trillion, representing 63% of the investable market. Of this total, 48%, or $8.2 trillion, is estimated to be of institutional quality. Within the $11.7 trillion institutional universe, standard sectors then represent near 70% of the overall. With a value of $2.6 trillion, apartment or condos are the largest standard sector, accounting for more than one-fifth of the institutional universe.
ALTERNATIVE RESIDENTIAL OR COMMERCIAL PROPERTY TYPES ARE A SUBSTANTIAL AND RISING COMPONENT
" Alternative" sectors, which consist of residential or commercial property types that have traditionally not been the predominant focus of institutional investors, account for the remaining 37% ($ 9.9 trillion) of the investable universe and $3.6 trillion, or 31%, of the institutional universe. The alternative subsegment of the CRE universe consists of the residential or commercial property types revealed below. Many listed REITs have actually been veteran gamers in the alternative sectors, however non-REIT investment has traditionally been limited. However, options are an increasing share of institutional-investor portfolios.
There are three recognizable groupings within the alternatives subset of the institutional market:
THE RESIDENTIAL SECTOR IS THE LARGEST COMPONENT
The domestic options grouping (inclusive of single-family rentals, trainee housing, age-restricted housing, and manufactured housing) is valued at 2 trillion, or 17% of the institutional universe. Within this group, the single-family rental sector (with 3.9 million homes) has the largest estimated value ( 1.3 T), accounting for 11.5% of the institutional universe. The trainee housing sector is the next largest housing sector within the group, comprised of 2.4 million beds with a valuation of $277B, followed by age-restricted housing at $251B and manufactured housing at $165B. Combining the residential options organizing with standard apartment or condos leads to the combined evaluation of $4.7 trillion, making housing in a wider sense represent the lion's share (40%) of the institutional universe.
INDUSTRIAL AND ADJACENT SECTORS
Comprised of commercial outdoor storage (IOS) and freezer warehousing, the industrial-adjacent group is valued at $187B, amounting to 1.6% of the institutional universe. Combining this group with the traditional industrial market leads to a worth of $1.5 trillion, or 13.1%, of the institutional universe.
HEALTHCARE SECTOR
The healthcare residential or commercial property types: life sciences, medical workplace, and seniors housing, have a combined projected institutional value of $839B, relating to 7.2% of the institutional universe. With a worth of $413B, medical workplace represent near half of the worth of the combined health care sector, followed by senior housing ($ 302B) and life sciences ($ 125B).
AN EVOLVING CRE LANDSCAPE
The CRE investment landscape is evolving quickly. Certain standard sectors, such as workplace and retail, have dealt with structural obstacles in the last decade, decreasing their general share of the investable universe by value; on the other hand, lots of alternative sectors have seen values increase considerably due to strong occupant and investor hunger. As a result, the share of capital flowing into the alternative sectors has actually increased significantly. Investments in alternative CRE sectors totaled up to $14.2 B in deal volume over the past 4 quarters, accounting for 16% of overall CRE volume, well above the share since 2014 of 13%, according to MSCI Real Capital Analytics.
Institutional financier interest in the alternative sectors has grown as well. The alternative sector share of the NCREIF Open-End Diversified Core Equity Index (ODCE) has increased from around 4% in 2017 to 12.9% as of 2024 Q2, led by investments in self-storage and life sciences - the largest alternative residential or commercial property sectors in the ODCE portfolio.