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%
WHY MEASURE THE INVESTABLE UNIVERSE?
The objective of this analysis is to offer investors with a benchmark for the size and scale of the U.S. business realty (CRE) market, specific residential or commercial property sectors and the "institutional" quality part of the market. As much as this point, published price quotes on the size of the industrial realty investable universe primarily focus on country-level worldwide comparisons, taking a top-down method to estimate the size of the general industrial property market in each region. Existing literature does little to approximate the worth of specific residential or commercial property types, not to mention alternative residential or sectors. This report aims to fill this space in the business real estate details landscape. Focusing exclusively on the United States, this report takes a bottom-up method, aggregating estimates for the size of individual business genuine estate residential or commercial property types to come to a value for the overall commercial real estate market. This technique enables division between standard and alternative residential or commercial property types, as well as the ability to estimate the share of "institutional" genuine estate by sector.
Just how huge is the U.S. commercial realty market? Although a seemingly uncomplicated concern, estimating the size of the market is challenging for several reasons: lack of data and openness (particularly for smaller sized, less-liquid and historically tracked residential or commercial property sectors), the widely diverse nature of the variety of investible residential or commercial property types, and inconsistent industry definitions/classifications.
This analysis tries to answer the question through a two-step procedure: initially, approximating the gross asset worth of each residential or commercial property sector no matter ownership, tenancy, period, size, place, and quality. After coming to a price quote for the general size of each sector, the 2nd step is to use filters based upon presumptions for building class, vintage, size and/or market to further narrow the investable universe to only consist of institutional properties - a subsegment of the investable universe that is limited to residential or commercial properties that fit the normal requirements of institutional investors.
Sector sizes are estimated using the most reputable personal and public data sources for industrial realty readily available, while also leveraging the knowledge and insights produced by Clarion and Rosen Consulting Group (RCG)'s experience in the market. For many sectors, the technique to calculating the general value includes approximating the physical size of the sector, be it square footage, systems, spaces, or beds; and integrating this with an estimated worth based on recent deal information. Less historically tracked residential or commercial property sectors require more presumptions to estimate market-level and still-fluid market meanings. For residential or commercial property sectors where square footage or system counts were not offered, overall value was approximated utilizing info from third-party information sources or insights from market individuals.
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 viewpoint, this is an overestimate, as it includes residential or commercial properties that fall listed below normal institutional requirements for developing size and quality. Similarly, this broad procedure of the CRE universe consists of a full series of locations, consisting of markets that are usually too small or insufficiently liquid for institutional investors. As such, we filtered our investable universe worth using a precise series of assumptions to produce an "institutional" universe price quote. These filters differ by residential or commercial property sector and include building area, quality, age and size. Through this method, the overall size of the institutional universe is estimated to be $11.7 trillion. Note, that this is over 10 times the size of the biggest industrial realty index, the NCREIF Residential Or Commercial Property Index, (NPI).
We segment the investable universe into 2 broad categories: 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 overall, 48%, or $8.2 trillion, is approximated to be of institutional quality. Within the $11.7 trillion institutional universe, conventional sectors then represent close to 70% of the total. With a value of $2.6 trillion, homes are the biggest conventional sector, representing more than one-fifth of the institutional universe.
ALTERNATIVE RESIDENTIAL OR COMMERCIAL PROPERTY TYPES ARE A SUBSTANTIAL AND RISING COMPONENT
" Alternative" sectors, that include residential or commercial property types that have actually traditionally not been the primary focus of institutional investors, represent the remaining 37% ($ 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 noted REITs have been long-time gamers in the alternative sectors, however non-REIT financial investment has actually historically been limited. However, alternatives are an increasing share of institutional-investor portfolios.
There are three recognizable groupings within the options subset of the institutional market:
THE RESIDENTIAL SECTOR IS THE LARGEST COMPONENT
The residential alternatives organizing (inclusive of single-family rentals, trainee housing, age-restricted housing, and produced 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 actually the biggest estimated value ( 1.3 T), accounting for 11.5% of the institutional universe. The student housing sector is the next largest housing sector within the group, consisted of 2.4 million beds with an evaluation of $277B, followed by age-restricted housing at $251B and made housing at $165B. Combining the property alternatives grouping with standard houses 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 cold storage warehousing, the industrial-adjacent group is valued at $187B, amounting to 1.6% of the institutional universe. Combining this group with the traditional commercial market leads to a value of $1.5 trillion, or 13.1%, of the institutional universe.
HEALTHCARE SECTOR
The healthcare residential or commercial property types: life sciences, medical office, and senior citizens housing, have a combined approximated institutional worth of $839B, relating to 7.2% of the institutional universe. With a worth of 413B, medical workplace accounts for near to half of the value of the combined healthcare sector, followed by senior housing ( 302B) and life sciences ($ 125B).
AN EVOLVING CRE LANDSCAPE
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The CRE investment landscape is evolving quickly. Certain conventional sectors, such as workplace and retail, have actually dealt with structural difficulties in the last years, lowering their general share of the investable universe by value; meanwhile, lots of alternative sectors have actually seen worths increase significantly due to strong tenant and investor appetite. As an outcome, the share of capital flowing into the alternative sectors has actually increased substantially. Investments in alternative CRE sectors amounted to $14.2 B in transaction volume over the previous 4 quarters, accounting for 16% of overall CRE volume, well above the share because 2014 of 13%, according to MSCI Real Capital Analytics.
Institutional financier interest in the alternative sectors has actually grown too. The alternative sector share of the NCREIF Open-End Diversified Core Equity Index (ODCE) has actually increased from around 4% in 2017 to 12.9% since 2024 Q2, led by investments in self-storage and life sciences - the biggest alternative residential or commercial property sectors in the ODCE portfolio.
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