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 benchmark for the size and scale of the U.S. business realty (CRE) market, individual residential or commercial property sectors and the "institutional" quality portion of the marketplace. Approximately this point, released quotes on the size of the business property investable universe mostly focus on country-level international contrasts, taking a top-down approach to approximate the size of the general business property market in each area. Existing literature does little to approximate the worth of particular residential or commercial property types, let alone alternative residential or commercial property sectors. This report aims to fill this gap in the business genuine estate info landscape. Focusing specifically on the United States, this report takes a bottom-up approach, aggregating price quotes for the size of specific industrial property residential or commercial property types to get to a value for the total business realty market. This technique enables division in between conventional and alternative residential or commercial property types, in addition to the capability to estimate the share of "institutional" realty by sector.
Just how big is the U.S. industrial realty market? Although a seemingly straightforward concern, approximating the size of the market is challenging for a number of reasons: lack of data and openness (particularly for smaller, less-liquid and traditionally tracked residential or commercial property sectors), the commonly varied nature of the range of investible residential or commercial property types, and inconsistent market definitions/classifications.
This analysis attempts to address the concern through a two-step process: first, estimating the gross property value of each residential or commercial property sector no matter ownership, tenancy, period, size, place, and quality. After getting here at a quote for the overall size of each sector, the 2nd action is to use filters based on assumptions for developing class, vintage, size and/or market to further narrow the investable universe to just include institutional assets - a subsegment of the investable universe that is restricted to residential or commercial properties that fit the normal criteria of institutional investors.
Sector sizes are approximated utilizing the most reliable personal and public data sources for industrial real estate available, while also leveraging the knowledge and insights produced by Clarion and Rosen Consulting Group (RCG)'s experience in the market. For a lot of sectors, the method to determining the overall value involves approximating the physical size of the sector, be it square video footage, units, spaces, or beds; and combining this with an estimated worth based upon recent deal data. Less historically tracked residential or commercial property sectors need more assumptions to approximate market-level and still-fluid market meanings. For residential or commercial property sectors where square footage or system counts were not offered, overall worth was approximated utilizing details 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 financier's viewpoint, this is an overestimate, as it includes residential or commercial properties that fall listed below normal institutional standards for building size and quality. Similarly, this broad measure of the CRE universe includes a complete series of locations, consisting of markets that are typically too little or insufficiently liquid for institutional financiers. As such, we filtered our investable universe value using a precise series of assumptions to produce an "institutional" universe price quote. These filters vary by residential or commercial property sector and consist of constructing 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 ten times the size of the largest industrial real estate 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, that include commercial, multifamily, workplace, retail, and hotels are valued at $16.9 trillion, representing 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 account for near to 70% of the overall. With a value of $2.6 trillion, apartments are the largest traditional sector, representing more than one-fifth of the institutional universe.
ALTERNATIVE RESIDENTIAL OR COMMERCIAL PROPERTY TYPES ARE A CONSIDERABLE AND RISING COMPONENT
" Alternative" sectors, that include residential or commercial property types that have traditionally not been the primary focus of institutional investors, represent the remaining 37% ($ 9.9 trillion) of the investable universe and $3.6 trillion, or 31%, of the institutional universe. The alternative subsegment of the CRE universe includes the residential or commercial property types revealed listed below. Many noted REITs have been long-time gamers in the alternative sectors, but non-REIT investment has actually historically been restricted. However, alternatives are an increasing share of institutional-investor portfolios.
There are 3 identifiable groupings within the options subset of the institutional market:
THE RESIDENTIAL SECTOR IS THE LARGEST COMPONENT
The domestic options organizing (inclusive of single-family leasings, trainee housing, age-restricted housing, and produced housing) is valued at $2 trillion, or 17% of the institutional universe. Within this group, the single-family rental sector (with 3.9 million houses) has actually the biggest approximated worth ($ 1.3 T), accounting for 11.5% of the institutional universe. The trainee housing sector is the next largest 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 residential options grouping with traditional apartments results in the combined evaluation of $4.7 trillion, making housing in a more comprehensive sense represent the lion's share (40%) of the institutional universe.
INDUSTRIAL AND ADJACENT SECTORS
Consisted of industrial outside 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 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 workplace, and elders housing, have a combined approximated institutional worth of $839B, corresponding to 7.2% of the institutional universe. With a value of $413B, medical workplace represent close to half of the worth of the combined healthcare sector, followed by senior housing ($ 302B) and life sciences ($ 125B).
AN EVOLVING CRE LANDSCAPE
The CRE investment landscape is progressing rapidly. Certain standard sectors, such as workplace and retail, have actually faced structural challenges in the last decade, minimizing their total share of the investable universe by worth; on the other hand, numerous alternative sectors have seen worths increase substantially due to strong renter and financier hunger. As a result, 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 overall 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 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% as of 2024 Q2, led by financial investments in self-storage and life sciences - the biggest alternative residential or commercial property sectors in the ODCE portfolio.
