Martin Mbeteni on Commercial Real Estate’s Role in the Economy

With roughly $6 trillion worth of commercial real estate in the United States, commercial real estate industry plays a crucial role in the economy. Commercial real estate is defined as any property that generate income via rental payments or capital gain. There are different types of commercial properties. Some properties provide space to businesses of all kinds, from hotels and restaurants to large manufacturers. Commercial real estate also includes multifamily housing with more than four units.

Martin Mbeteni, a Vice President at JLL provides a brief summary of the five major categories of commercial real estate properties. These types of real estate are ranked in order of their total value.

1. Retail

Retail investments range from small multi-use buildings to large regional malls. Retail includes such diverse types of businesses as restaurants and big box stores to smaller boutique stores. The value of retail space in the United States market is approximately $2.1 trillion, or 36 percent of the commercial real estate market as a whole. Even though retail sector has been facing headwinds recently due to a shift on how consumers buy products, it’s role in our economy is still very significant.

2. Hotels

Hotels include full service, limited service, and extended stay hotels. These properties are worth approximately $1.92 trillion dollars or 32 percent of the total value of commercial real estate. It is estimated that there are 4.4 million individual hotel rooms in the United States. As investments, hotels can be risky. The value of hotel investments depends strongly on the strength of the local market as well as the demand and supply of hotel rooms.

3. Offices

With $1.7 trillion in value and 4 billion square feet, the office market takes up 29 percent of the total value of commercial real estate. Offices are ranked by class, from Class A to Class C. Class A properties combine the highest quality finish in desirable locations, while the lower classes have fewer amenities and are in less desirable locations. The strong economy means that new office space is in high demand across many markets in the country.

4. Apartments

Multifamily buildings with more than four units are generally considered to be commercial real estate, though some surveys classify them as residential real estate. With a value of $1.4 trillion dollars, apartments have 33 million square feet of rentable space. Apartments are classified as garden apartments, mid rise apartments, and high-rise apartments.

5. Industrial Buildings

With 13 billion square feet, the value of industrial buildings adds up to $240 billion or 4 percent of commercial real estate space in the country. Industrial properties include warehouses, manufacturing facilities, and mixed-use buildings with different types of space included.

Heavy manufacturing buildings often include a great deal of machinery and are difficult to turn over. Light assembly buildings tend to be relatively easier for investors because they can be repurposed more smoothly. Bulk warehouse buildings are usually in the 50,000 to 1 million square foot range.

Other types of commercial real estate which generally do not fall into the five above categories include seniors housing, data centers, hospitals, medical office buildings, nonprofits like schools, churches and the likes.

Commercial Real Estate as Part of the Economy

According to NAIOP Research Foundation, a Commercial Real Estate Development Association, in 2017 Commercial Real Estate supported 7.6 million American jobs generating $286.4 billion in salaries and wages. During the same year, the industry contributed $935.1 billion to the GDP.

Even though commercial real estate may seem like a small portion of the economy as a whole, Martin Mbeteni believes that a healthy commercial real estate market is crucial to its success. Individuals and businesses can take advantage of the economic growth potential of commercial real estate to build lasting wealth, through either direct or indirect investment in this important industry.