US Real Estate Sector
Industry Profile Report
Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters
Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.
Call Preparation Call Prep Questions, Industry Terms, and Weblinks.
Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.
Industry Profile Excerpts
Industry Overview
The 414,970 establishments in the real estate sector are involved in the purchase, sale, rental, leasing, and management of properties. Establishments typically specialize in a particular type of property, such as residential, commercial, or industrial.
Dependence on Credit
The real estate sector is capital-intensive and highly dependent on credit.
Maintaining Occupancy
For commercial and residential lessors, maintaining occupancy is critical to generating steady streams of rental income, which are necessary to cover operating expenses and debt costs.
Industry size & Structure
The real estate sector is comprised of 414,970 establishments that employ more than 1.9 million workers and generate $690 billion in annual revenue, according to government sources.
- The real estate sector represents 12% of the nation's Gross Domestic Product (GDP) and employs 1.2% of the country's workers.
- The sector is fragmented with the 20 largest firms representing 13% of revenue.
- In addition to employer establishments, the real estate sector has 2.8 million owner-operated establishments with no employees. Subsectors with the highest numbers of nonemployer establishments are lessors of real estate (44%) and offices of real estate agents and brokers (28%). The owners of nonemployer establishments typically perform the work and may outsource support functions like marketing and accounting.
- The real estate sector has shed about 27,000 establishments annually, which equals about 9.6% of existing establishments. However, the sector has added about 36,000 new establishments annually, which is equivalent to 12.7% of existing establishments. As a result, the sector has an average growth rate of 3.1%.
- The real estate sector is forecast to grow its employment base by 2.1% overall in 2021-2031, which is much lower than the national average of 5.3% for all jobs, according to the Bureau of Labor Statistics.
Industry Forecast
US Real Estate Sector Industry Growth
Recent Developments
Jul 18, 2024 - Home Builder Confidence Wanes
- Home builder confidence in the single-family market dropped in July to the lowest level since December 2023 amid high mortgage rates and elevated builder financing costs, according to the National Association of Home Builders (NAHB). Home builder sentiment, as measured by the NAHB/Wells Fargo Housing Market Index (HMI), fell one point to 42 in July 2024. Any HMI reading over 50 indicates that more builders see conditions as good than poor. The HMI survey also showed that 31% of builders have reduced home prices to lure potential buyers off the sidelines, although the average price reduction of 6% remained unchanged for the thirteenth consecutive month.
- Since Q4 2022, weekly US in-person office occupancy has remained a stubbornly low 50%, according to a June 2024 report by The Conference Board. In the wake of the pandemic, employers have found that offering hybrid work schedules is an effective way to attract and retain workers constrained by long commutes and higher costs of living. Nearly 70% of US firms offer their employees hybrid or remote flexibility, up from about 51% in Q1 2023. According to data firm CoStar, when companies sign new leases, they are reducing their office footprints by about 19%. Low office occupancy brings risks for the commercial real estate sector and cities’ central business districts that depend on office worker spending.
- The health of the US commercial real estate market is mostly solid, except for the beleaguered office sector and a minor slowdown in industrial property demand, according to a July report by Moody’s. In multifamily, a large wave of new supply cooled rent growth in the second quarter, but demand seems to be catching up to the flush of fresh inventory while vacancy rates remained mostly unchanged year-over-year. The office sector continues to face significant headwinds as hybrid work models weigh on demand. Office vacancies in Q2 2024 hit a record-setting 20.1%, marking the third consecutive quarter that vacancies hit new all-time highs. Despite signs that consumers may be pulling back on spending, the retail vacancy rate in Q2 held steady compared to the same period in 2023, and asking rents saw a slight increase. The market for industrial space has softened compared to the pandemic years when warehouse construction boomed. Industrial vacancies increased about 1.2% in Q2 2024 compared to Q2 2023, but asking rents have remained steady.
- A trend in smaller lot sizes for single-family detached homes has accelerated in recent years, according to the latest Survey of Construction by the US Census Bureau. Even as more families decamped to suburban areas seeking more space during the pandemic, lot sizes have continued to shrink. In 2023, lot sizes of less than 0.16 acres (less than 7,000 square feet) accounted for 40% of new single-family home sales compared to 30% in 2011. The share of lots under 0.16 acres has risen two percentage points since the pandemic began. Shrinking lot sizes suggest that firms that build homes speculatively have reduced lot and home sizes to cope with lot shortages and to offer more affordable homes as housing costs have risen.
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