The main segments of the real estate sector are residential real estate, commercial real estate, and industrial real estate.
The residential sector focuses on the buying and selling of properties used as homes or for non-professional purposes. The residential real estate sector is comprised of single-family homes, apartments, condominiums, planned unit developments, and more. For the past few years, this segment of the real estate industry has been steadily increasing in value; in May 2021, median home prices were up at approximately $337,400, while the residential real estate market as a whole was valued at more than $33.8 trillion.
While there has been a lot of discussion recently on whether younger generations such as Millennials are still buying property, the trend towards urbanization and growth of large cities will definitely inform residential real estate prices for years to come.
The commercial sector consists of real estate used for business purposes; common types include shopping malls, retail, office spaces, hotels, or other spaces used for business purposes. Some of the latest estimates of the commercial real estate market from 2018 show a valuation of approximately $16 trillion. However, as prices fluctuate in the global economy, a number of investors have shown hesitance to continue investing in the commercial real estate segment.
According to Deloitte’s 2021 commercial real estate outlook, approximately 47% of North American commercial real estate companies expect a rental decline, while 49% expect an increase in vacancies.
The industrial real estate segment is comprised of properties used for manufacturing and production, such as factories, plants, and warehouses. Utility companies such as PG&E, for example, will own a lot of industrial real estate as assets, including but not limited to power plants that work to generate electricity.
The different segments have different metrics that investors and analysts use to gauge the health of the real estate industry. All three segments feature publicly traded real estate investment trusts, or REITs, portfolios of properties whose stock prices investors frequently use to determine and analyze industry trends.
REITs in the residential sector include Essex Property Trust Inc. (ESS) and National Retail Properties Inc. (NNN). Home prices also serve as a gauge for the health of this segment, although following the recent housing market crash of 2008, special attention has been paid to ensuring that home prices do not reflect an inflated housing bubble.
In the commercial real estate sector, the largest REITs include Simon Property Group (SPG) and Brookfield Property (BPYUP). Investors in this sector also look at sales data for office buildings and retail developments and lease price trends for office and retail space.
ProLogis (PLD), Rexford Industrial (REXR), and PS Business Parks (PSB) are some of the most well-known REITs in the industrial real estate segment. Apart from REIT stock prices, leading indicators for the industrial real estate sector include goods consumption, industrial production, port traffic, and truck tonnage.