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 represent over 30%






WHY MEASURE THE INVESTABLE UNIVERSE?


The goal of this analysis is to supply investors with a standard for the size and scale of the U.S. industrial real estate (CRE) market, specific residential or commercial property sectors and the "institutional" quality part of the market. Approximately this point, released estimates on the size of the business genuine estate investable universe primarily focus on country-level worldwide comparisons, taking a top-down method to approximate the size of the general commercial realty market in each region. Existing literature does little to estimate the worth of particular residential or commercial property types, let alone alternative residential or commercial property sectors. This report aims to fill this space in the commercial real estate details landscape. Focusing exclusively on the United States, this report takes a bottom-up approach, aggregating quotes for the size of specific commercial property residential or commercial property types to come to a value for the general business real estate market. This method enables for segmentation in between standard and alternative residential or commercial property types, in addition to the ability to estimate the share of "institutional" realty by sector.


Just how big is the U.S. business property market? Although an apparently uncomplicated concern, estimating the size of the marketplace is challenging for numerous reasons: lack of data and openness (especially 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 industry definitions/classifications.


This analysis attempts to address the concern through a two-step procedure: initially, estimating the gross possession value of each residential or commercial property sector no matter ownership, occupancy, tenure, size, place, and quality. After getting to an estimate for the general size of each sector, the second action is to apply filters based on assumptions for building class, vintage, size and/or market to more 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 common criteria of institutional financiers.


Sector sizes are estimated utilizing the most reputable private and public information for business realty offered, while also leveraging the understanding and insights created by Clarion and Rosen Consulting Group (RCG)'s experience in the market. For the majority of sectors, the approach to determining the total worth includes approximating the physical size of the sector, be it square video, units, spaces, or beds; and combining this with an estimated worth based upon recent transaction information. Less historically 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 video footage or system counts were not available, total value was approximated utilizing info from third-party data sources or insights from market participants.


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 investor's perspective, 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 procedure of the CRE universe includes a full variety of locations, consisting of markets that are usually too small or insufficiently liquid for institutional investors. As such, we filtered our investable universe worth utilizing a precise series of presumptions to generate an "institutional" universe price quote. These filters differ by residential or commercial property sector and include developing place, quality, age and size. Through this technique, the total size of the institutional universe is approximated to be $11.7 trillion. Note, that this is over 10 times the size of the largest business genuine estate index, the NCREIF Residential Or Commercial Property Index, (NPI).


We section 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, that include commercial, multifamily, office, retail, and hotels are valued at $16.9 trillion, accounting for 63% of the investable market. Of this overall, 48%, or $8.2 trillion, is estimated to be of institutional quality. Within the $11.7 trillion institutional universe, conventional sectors then represent near to 70% of the total. With a worth of $2.6 trillion, houses are the biggest 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 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 listed below. Many listed REITs have been long-time players in the alternative sectors, however non-REIT investment has historically been restricted. However, options are an increasing share of institutional-investor portfolios.


There are 3 identifiable groupings within the alternatives subset of the institutional market:


THE RESIDENTIAL SECTOR IS THE LARGEST COMPONENT


The domestic options grouping (inclusive of single-family leasings, student housing, age-restricted housing, and produced housing) is valued at $2 trillion, or 17% of the institutional universe. Within this group, the single-family rental sector (with 3.9 million houses) has the largest approximated value ($ 1.3 T), accounting for 11.5% of the institutional universe. The trainee housing sector is the next largest housing sector within the group, consisted of 2.4 million beds with an evaluation of $277B, followed by age-restricted housing at $251B and manufactured housing at $165B. Combining the residential options grouping with conventional apartment or condos results in the combined valuation of $4.7 trillion, making housing in a broader sense represent 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 standard commercial market results in a worth 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 seniors housing, have a combined approximated institutional worth of $839B, equating to 7.2% of the institutional universe. With a worth of $413B, medical office represent close to half of the worth of the combined healthcare sector, followed by senior housing ($ 302B) and life sciences ($ 125B).


AN EVOLVING CRE LANDSCAPE


The CRE financial investment landscape is developing quickly. Certain traditional sectors, such as workplace and retail, have dealt with structural obstacles in the last years, minimizing their total share of the investable universe by value; on the other hand, numerous alternative sectors have actually seen values increase substantially due to strong occupant and financier cravings. As an outcome, the share of capital streaming into the alternative sectors has increased significantly. Investments in alternative CRE sectors totaled up to $14.2 B in transaction volume over the past four quarters, accounting for 16% of total CRE volume, well above the share because 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 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.