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 dominate.
- Alternative sectors account for over 30%
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WHY MEASURE THE INVESTABLE UNIVERSE?
The goal of this analysis is to provide investors with a criteria for the size and scale of the U.S. commercial property (CRE) market, individual residential or commercial property sectors and the "institutional" quality part of the marketplace. Up to this point, published price quotes on the size of the commercial realty investable universe primarily concentrate on country-level worldwide comparisons, taking a top-down approach to estimate the size of the overall commercial realty 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 real estate info landscape. Focusing exclusively on the United States, this report takes a bottom-up method, aggregating quotes for the size of specific business realty residential or commercial property types to show up at a worth for the overall business genuine estate market. This method enables segmentation between conventional and alternative residential or commercial property types, as well as the capability to estimate the share of "institutional" property by sector.
Just how big is the U.S. industrial property market? Although a seemingly simple question, approximating the size of the marketplace is challenging for numerous reasons: absence of information and transparency (specifically for smaller, 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 market definitions/classifications.
This analysis tries to answer the concern through a two-step process: initially, estimating the gross asset worth of each residential or commercial property sector despite ownership, tenancy, period, size, location, and quality. After getting here at a quote for the total size of each sector, the second action is to use filters based on assumptions for building 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 criteria of institutional financiers.
Sector sizes are approximated using the most reputable personal and public data sources for industrial property readily available, while likewise leveraging the knowledge and insights produced by Clarion and Rosen Consulting Group (RCG)'s experience in the market. For many sectors, the technique to determining the overall worth includes estimating the physical size of the sector, be it square video, systems, spaces, or beds; and combining this with an estimated worth based on current deal data. Less historically tracked residential or commercial property sectors require more presumptions to approximate market-level and still-fluid market meanings. For residential or commercial property sectors where square video footage or system counts were not offered, overall value was estimated utilizing info from third-party data 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 perspective, this is an overestimate, as it consists of residential or commercial properties that fall listed below common institutional requirements for building size and quality. Similarly, this broad procedure of the CRE universe includes a full series of locations, including markets that are normally too small or insufficiently liquid for institutional investors. As such, we filtered our investable universe value utilizing a precise series of presumptions to create an "institutional" universe price quote. These filters differ by residential or commercial property sector and include developing location, quality, age and size. Through this approach, the overall size of the institutional universe is approximated to be $11.7 trillion. Note, that this is over 10 times the size of the largest industrial property index, the NCREIF Residential Or Commercial Property Index, (NPI).
We sector the investable universe into two 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, 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 approximated to be of institutional quality. Within the $11.7 trillion institutional universe, standard sectors then account for near 70% of the overall. With a value of $2.6 trillion, apartment or condos are the largest conventional sector, representing more than one-fifth of the institutional universe.
ALTERNATIVE RESIDENTIAL OR COMMERCIAL PROPERTY TYPES ARE A SIGNIFICANT AND RISING COMPONENT
" Alternative" sectors, which include residential or commercial property types that have actually historically not been the primary focus of institutional investors, represent the staying 37% ($ 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 revealed listed below. Many listed REITs have actually been long-time players in the sectors, however non-REIT investment has actually traditionally been limited. However, options are an increasing share of institutional-investor portfolios.
There are three identifiable groupings within the options subset of the institutional market:
THE RESIDENTIAL SECTOR IS THE LARGEST COMPONENT
The residential alternatives grouping (inclusive of single-family leasings, trainee housing, age-restricted housing, and produced housing) is valued at $2 trillion, or 17% of the institutional universe. Within this group, the single-family rental sector (with 3.9 million homes) has actually the largest approximated value ($ 1.3 T), accounting for 11.5% of the institutional universe. The student housing sector is the next biggest housing sector within the group, comprised of 2.4 million beds with an appraisal of $277B, followed by age-restricted housing at $251B and manufactured housing at $165B. Combining the domestic options grouping with traditional apartments leads to the combined evaluation of $4.7 trillion, making housing in a more comprehensive sense account for the lion's share (40%) of the institutional universe.
INDUSTRIAL AND ADJACENT SECTORS
Comprised of industrial 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 conventional 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 estimated 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 obstacles in the last years, minimizing their overall share of the investable universe by worth; meanwhile, lots of alternative sectors have seen values increase considerably due to strong renter and financier hunger. As an outcome, the share of capital streaming into the alternative sectors has actually increased considerably. Investments in alternative CRE sectors totaled up to $14.2 B in transaction volume over the previous four quarters, representing 16% of total CRE volume, well above the share since 2014 of 13%, according to MSCI Real Capital Analytics.
Institutional financier interest in the alternative sectors has actually 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% since 2024 Q2, led by financial investments in self-storage and life sciences - the largest alternative residential or commercial property sectors in the ODCE portfolio.
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