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 represent over 30%
WHY MEASURE THE INVESTABLE UNIVERSE?
The objective of this analysis is to offer financiers with a benchmark for the size and scale of the U.S. industrial genuine estate (CRE) market, individual residential or commercial property sectors and the "institutional" quality part of the marketplace. Approximately this point, published estimates on the size of the industrial real estate investable universe mainly focus on country-level international comparisons, taking a top-down technique to estimate the size of the general business 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 intends to fill this space in the business property info landscape. Focusing exclusively on the United States, this report takes a bottom-up approach, aggregating price quotes for the size of private business realty residential or commercial property types to come to a value for the total commercial genuine estate market. This method enables division in between conventional and alternative residential or commercial property types, as well as the capability to estimate the share of "institutional" realty by sector.
Just how big is the U.S. commercial property market? Although a relatively straightforward question, estimating the size of the market is challenging for a number of factors: lack of data and transparency (particularly for smaller sized, less-liquid and historically tracked residential or commercial property sectors), the commonly varied nature of the series of investible residential or commercial property types, and irregular market definitions/classifications.
This analysis tries to respond to the question through a two-step procedure: initially, approximating the gross asset value of each residential or commercial property sector no matter ownership, tenancy, tenure, size, area, and quality. After getting to an estimate for the total size of each sector, the 2nd action is to use filters based upon assumptions for constructing class, vintage, size and/or market to further narrow the investable universe to just include institutional properties - a subsegment of the investable universe that is restricted to residential or commercial properties that fit the normal requirements of institutional financiers.
Sector sizes are estimated utilizing the most reputable personal and public information sources for commercial genuine estate readily available, while likewise leveraging the knowledge and insights generated by Clarion and Rosen Consulting Group (RCG)'s experience in the market. For the majority of sectors, the technique to determining the overall value involves approximating the physical size of the sector, be it square video footage, units, rooms, or beds; and combining this with an approximated value based on recent deal data. Less historically tracked residential or commercial property sectors require more presumptions to estimate market-level and still-fluid market definitions. For residential or commercial property sectors where square footage or system counts were not offered, total worth was approximated utilizing info from third-party data sources or insights from market participants.
OUR ESTIMATE OF THE INVESTABLE UNIVERSE
We estimate the overall size of the U.S. CRE investable universe to be $26.8 trillion.
However, from an institutional investor's point of view, this is an overestimate, as it consists of residential or commercial properties that fall below typical institutional requirements for building size and quality. Similarly, this broad step of the CRE universe includes a full variety of geographies, consisting of markets that are generally too small or insufficiently liquid for financiers. As such, we filtered our investable universe worth using a careful series of presumptions to create an "institutional" universe price quote. These filters differ by residential or commercial property sector and consist of building area, quality, age and size. Through this method, the total size of the institutional universe is estimated to be $11.7 trillion. Note, that this is over ten times the size of the biggest commercial real estate index, the NCREIF Residential Or Commercial Property Index, (NPI).
We section 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 include commercial, 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 represent near to 70% of the total. With a value of $2.6 trillion, apartment or condos are the largest conventional sector, representing more than one-fifth of the institutional universe.
ALTERNATIVE RESIDENTIAL OR COMMERCIAL PROPERTY TYPES ARE A CONSIDERABLE AND RISING COMPONENT
" Alternative" sectors, which consist of residential or commercial property types that have actually traditionally not been the primary focus of institutional financiers, account for the staying 37% ($ 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 long-time players in the alternative sectors, however non-REIT investment has traditionally been restricted. 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 organizing (inclusive of single-family leasings, student housing, age-restricted housing, and made housing) is valued at $2 trillion, or 17% of the institutional universe. Within this group, the single-family rental sector (with 3.9 million houses) has actually the largest approximated worth ($ 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 produced housing at $165B. Combining the residential alternatives organizing with conventional homes leads to the combined assessment 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 conventional industrial market leads to a value of $1.5 trillion, or 13.1%, of the institutional universe.
HEALTHCARE SECTOR
The health care residential or commercial property types: life sciences, medical office, and elders housing, have a combined approximated institutional worth of $839B, corresponding to 7.2% of the institutional universe. With a value of $413B, medical workplace accounts for close to half of the value of the combined health care sector, followed by senior housing ($ 302B) and life sciences ($ 125B).
AN EVOLVING CRE LANDSCAPE
The CRE financial investment landscape is evolving rapidly. Certain conventional sectors, such as workplace and retail, have dealt with structural difficulties in the last decade, minimizing their general share of the investable universe by worth; on the other hand, numerous alternative sectors have seen worths increase substantially due to strong occupant and financier cravings. As a result, the share of capital flowing into the alternative sectors has actually increased substantially. Investments in alternative CRE sectors totaled up to $14.2 B in deal volume over the past 4 quarters, representing 16% of total CRE volume, well above the share because 2014 of 13%, according to MSCI Real Capital Analytics.
Institutional investor interest in the alternative sectors has actually grown too. 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 biggest alternative residential or commercial property sectors in the ODCE portfolio.