Commercial Real Estate | A $21 Trillion Market

March 21, 2023   |   Brokerage

New data from Q2 of the 2021 Commercial Real Estate Market holds valuable insights for those interested in the future of CRE.

The Commercial Real Estate (CRE) market is essential to the global economy. It encompasses various property sectors such as office, retail, industrial, and multi-family, among others. New data from CoStar and Nareit has valued the CRE market at an estimated $20.7 trillion.

Despite its importance, the CRE market's actual value still needs to be determined due to measurement issues within the underlying data. However, an in-depth examination of these sources of uncertainty suggests that the actual value of the CRE market is highly likely to fall within a range of $18 to $22 trillion.

                                                                                          Source: Nareit: CoStar

To arrive at this estimate, the best available data for each property sector was utilized through a bottom-up approach. Because of the measurement issues, there is reason to believe that the new numbers, which will be available mid-year, will be 10 to 20% lower. The “price per square foot” metrics are also interesting but should be adjusted for local markets. It’s possible that our own market could be 10% less.

While the potential for future challenges may be concerning, there are reasons to be optimistic about the future of the CRE market. The industry has consistently demonstrated resilience, having weathered numerous economic downturns in the past. The ongoing evolution of technology and the rise of alternative financing models have also opened up new avenues for growth and innovation.

One significant factor that contributes to the resilience of the CRE market is its ability to adapt to changing conditions. While the market may experience temporary setbacks, it has a track record of bouncing back in the long term. Additionally, investors and businesses can take advantage of new opportunities presented by the shift toward technology-driven business models and alternative financing options.

Market Trends

In particular, the rise of crowdfunding has made it easier for smaller investors to participate in the CRE market. Crowdfunding platforms allow investors to pool their resources and invest in larger real estate projects, opening up a new avenue for growth and opportunity.

Another factor contributing to the resilience of the CRE market is the rise of technology. With the increasing use of data analytics, artificial intelligence, and machine learning, investors and businesses can make more informed decisions about market trends, investment opportunities, and potential risks. These technological advancements have also made it easier for companies to manage and optimize their operations, improving efficiency and reducing costs.

Moreover, the ongoing trend toward flexible workspaces and remote work is expected to impact the CRE market significantly. As more businesses adopt remote work policies, there may be a shift away from traditional office spaces, creating new opportunities for investment in alternative property sectors such as co-working spaces and flexible office arrangements.

While the actual value of the CRE market remains uncertain, a careful analysis of available data suggests that the market is likely to remain robust and adaptable to changing conditions. Investors and businesses should remain vigilant and adjust their strategies to take advantage of new opportunities and mitigate potential risks. With the evolution of technology and alternative financing models, the future of the CRE market is promising, offering significant financial opportunities for investors and businesses alike.

Gary M. Ralston
Gary is an expert in all things commercial and he holds a strong passion for educating clients on market trends in the current and future economy. Earlier in his career, he guided a corporate real estate firm from less than $15 million in real estate assets to over $1.5 billion. Recognized as...