The U.S. Commercial Real Estate Investable Universe
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Estimated $26.8 T U.S. CRE investable universe
- Institutional-quality represents $11.7 T (44%).
- Residential sectors dominate.
- Alternative sectors account for over 30%
WHY MEASURE THE INVESTABLE UNIVERSE?
The goal of this analysis is to offer financiers with a standard for the size and scale of the U.S. commercial real estate (CRE) market, private residential or commercial property sectors and the "institutional" quality portion of the marketplace. Approximately this point, released estimates on the size of the business realty investable universe mostly concentrate on country-level global comparisons, taking a top-down approach to estimate the size of the total industrial genuine estate market in each region. Existing literature does little to estimate the value of particular residential or commercial property types, let alone alternative residential or commercial property sectors. This report aims to fill this space in the business genuine estate details landscape. Focusing exclusively on the United States, this report takes a bottom-up technique, aggregating estimates for the size of private business genuine estate residential or commercial property types to come to a worth for the overall industrial realty market. This approach enables division between conventional and alternative residential or commercial property types, in addition to the ability to approximate the share of "institutional" realty by sector.
Just how big is the U.S. commercial property market? Although a seemingly simple question, estimating the size of the marketplace is challenging for numerous reasons: absence of data and openness (particularly for smaller sized, less-liquid and historically tracked residential or commercial property sectors), the extensively diverse nature of the variety of investible residential or commercial property types, and inconsistent market definitions/classifications.
This analysis attempts to respond to the concern through a two-step process: initially, approximating the gross asset worth of each residential or commercial property sector regardless of ownership, occupancy, tenure, size, location, and quality. After reaching a price quote for the general size of each sector, the 2nd action is to use filters based upon assumptions for constructing class, vintage, size and/or market to additional narrow the investable universe to only consist of institutional assets - a subsegment of the investable universe that is limited to residential or commercial properties that fit the common requirements of .
Sector sizes are estimated utilizing the most trusted personal and public information sources for business realty available, while also leveraging the understanding and insights generated by Clarion and Rosen Consulting Group (RCG)'s experience in the market. For a lot of sectors, the approach to calculating the total value involves approximating the physical size of the sector, be it square footage, systems, spaces, or beds; and integrating this with an estimated worth based on current transaction data. Less historically tracked residential or commercial property sectors need more assumptions to estimate market-level and still-fluid market definitions. For residential or commercial property sectors where square footage or system counts were not readily available, overall worth was approximated using details from third-party information sources or insights from market individuals.
OUR ESTIMATE OF THE INVESTABLE UNIVERSE
We approximate the overall 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 consists of residential or commercial properties that fall listed below typical institutional requirements for building size and quality. Similarly, this broad measure of the CRE universe consists of a full range of locations, consisting of markets that are generally too little or insufficiently liquid for institutional investors. As such, we filtered our investable universe worth using a meticulous series of assumptions to produce an "institutional" universe price quote. These filters differ by residential or commercial property sector and consist of building place, quality, age and size. Through this approach, the overall size of the institutional universe is estimated to be $11.7 trillion. Note, that this is over ten times the size of the largest commercial property index, the NCREIF Residential Or Commercial Property Index, (NPI).
We sector the investable universe into two 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, which consist of industrial, multifamily, office, retail, and hotels are valued at $16.9 trillion, accounting for 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, traditional sectors then account for near 70% of the total. With a value of $2.6 trillion, apartments are the largest standard sector, representing more than one-fifth of the institutional universe.
ALTERNATIVE RESIDENTIAL OR COMMERCIAL PROPERTY TYPES ARE A SIGNIFICANT AND RISING COMPONENT
" Alternative" sectors, that include residential or commercial property types that have actually traditionally not been the predominant focus of institutional investors, represent the staying 37% ($ 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 shown below. Many listed REITs have been veteran players in the alternative sectors, but non-REIT investment has traditionally been limited. However, alternatives 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 property alternatives organizing (inclusive of single-family rentals, trainee housing, age-restricted housing, and manufactured housing) is valued at $2 trillion, or 17% of the institutional universe. Within this group, the single-family rental sector (with 3.9 million houses) has actually the largest approximated value ($ 1.3 T), accounting for 11.5% of the institutional universe. The trainee housing sector is the next biggest housing sector within the group, consisted of 2.4 million beds with an appraisal of $277B, followed by age-restricted housing at $251B and made housing at $165B. Combining the domestic alternatives 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
Consisted of industrial outside 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 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 projected institutional worth of $839B, relating to 7.2% of the institutional universe. With a value of $413B, medical office represent near half of the worth of the combined health care sector, followed by senior housing ($ 302B) and life sciences ($ 125B).
AN EVOLVING CRE LANDSCAPE
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The CRE investment landscape is progressing quickly. Certain conventional sectors, such as workplace and retail, have faced structural difficulties in the last decade, lowering their general share of the investable universe by value; meanwhile, numerous alternative sectors have actually seen values increase considerably due to strong tenant and investor appetite. As an outcome, the share of capital flowing into the alternative sectors has increased substantially. Investments in alternative CRE sectors amounted to $14.2 B in deal 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 investor interest in the alternative sectors has grown also. The alternative sector share of the NCREIF Open-End Diversified Core Equity Index (ODCE) has increased from around 4% in 2017 to 12.9% since 2024 Q2, led by investments in self-storage and life sciences - the largest alternative residential or commercial property sectors in the ODCE portfolio.