NN007 Commercial Real Estate in The US Industry Report

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COM
Commercial Real Estate in the US February 2014
Moving on up: Demand for commercial real

estate will recovery as vacancy rates decline
IBISWorld Industry Report NN007
Commercial Real
Estate in the US
February 2014
Nick Petrillo
About this Industry
20 International Trade
39 Key Statistics
Industry Definition
21 Business Locations
39 Industry Data
Main Activities
Similar Industries
24 Competitive Landscape
Additional Resources
24 Market Share Concentration
Industry at a Glance
Industry Performance
29 Barriers to Entry
Executive Summary
30 Industry Globalization
Key External Drivers
Current Performance
Industry Outlook
39 Annual Change
25 Key Success Factors
39 Key Ratios
40 Jargon & Glossary
25 Cost Structure Benchmarks

27 Basis of Competition
12 Industry Life Cycle
31 Major Companies
35 Operating Conditions
35 Capital Intensity
14 Products & Markets
36 Technology & Systems
14 Supply Chain
36 Revenue Volatility
14 Products & Services
37 Regulation & Policy
17 Demand Determinants
38 Industry Assistance
18 Major Markets
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About this Industry

Industry Definition
This industry is composed of

establishments that construct or
develop commercial, industrial and
multifamily residential property and
those that provide commercial real
estate services, including renting,
leasing, managing, buying and selling
Main Activities
The primary activities of this industry are
real estate. Other related services,

such as appraisals and consulting, are
also included. Construction and
activities related to utilities and
energy, such as power plants or water
treatment facilities, are excluded from
the industry.
Leasing nonresidential buildings, structures and land

Leasing mini warehouses and self-storage units
Renting nonresidential real estate for others (i.e. agents or brokers)
Selling and buying real estate for others (i.e. agents or brokers)
Providing property management services
Providing real estate appraisal and valuation services
Providing real estate asset management services
Commercial, industrial, apartment and municipal building construction
Providing real estate listing services
Providing real estate consulting services
The major products and services in this industry are

Commercial leasing
Construction
Property and asset management and consulting
Residential leasing
Sales and brokerage
Other activities
Similar Industries
23721 Land Development in the US

Companies in this industry mainly engage in procuring and developing land for residential and
nonresidential subdivision.
23331 Industrial Building Construction in the US
Companies in this industry specialize in constructing industrial and manufacturing buildings.
53111 Apartment Rental in the US
Firms in this industry primarily act as lessors of multiunit buildings used as residences or dwellings, such as
apartment complexes, retirement villages and mixed-use properties and townhomes.
53112 Commercial Leasing in the US
Companies in this industry primarily act as lessors of buildings that are not used as residences or dwellings.
53121 Real Estate Sales & Brokerage in the US
Companies in this industry primarily act as intermediaries during various real estate transactions, including
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About this Industry
Similar Industries
continued
buying, selling and renting real estate.

53131 Property Management in the US
Companies in this industry primarily act as managers of real estate property that is owned by others.
53132 Real Estate Appraisal in the US
Firms in this industry specialize in estimating fair market value of real estate. Appraisers research a property
or development to determine its market value.
53139 Real Estate Asset Management & Consulting in the US
Firms in this industry provide a variety of real estate-related services, including escrow, fiduciary,
consultancy, research, listings, tenant representation and other miscellaneous activities.
23332a Commercial Building Construction in the US
Firms in this industry specialize in constructing commercial buildings, including malls, shopping centers and
office buildings.
23332b Municipal Building Construction in the US
Companies in this industry specialize in constructing municipal buildings, including schools, courthouses,
town halls and civic centers.
Additional Resources
For additional information on this industry

www.bea.gov
Bureau of Economic Analysis
www.federalreserve.gov
Federal Reserve
www.realtor.org
National Association of Realtors
www.reit.com
The National Association of Real Estate Investment Trusts (NAREIT)
IBISWorld writes over 700 US

industry reports, which are updated
up to four times a year. To see all
reports, go to www.ibisworld.com
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Industry at a Glance
Commercial Real Estate in 2014
Key Statistics
Snapshot
Revenue
Annual Growth 09-14
Annual Growth 14-19
Profit
Wages
Businesses
$957.4bn 2.4%
3.7%
$135.9bn $261.8bn 2,095,124
Value of private nonresidential construction
Revenue vs. employment growth
% change
There are no
Major Players in
this industry
12
650
600
550
$ billion
Market Share
0
4
500
450
400
12
Year 06
08
10
12
Revenue
14
16
18
350
Year 05
20
07
09
11
13
15
17
19
Employment
SOURCE: WWW.IBISWORLD.COM
p. 31
Products and services segmentation (2014)
6.3%
10.6%
Value of private
nonresidential
construction
Property and asset

management and consulting
Other activities
Consumer spending
43.6%
12.2%
Office rental vacancy
Construction
Sales and brokerage
Yield on 10-year
Treasury note
Corporate profit
12.4%
Commercial leasing
14.9%
p. 5
Residential leasing
Industry Structure
Life Cycle Stage

Revenue Volatility
Mature
Medium
Regulation Level
Medium
Technology Change
Medium
Medium
Capital Intensity
Low
Barriers to Entry
Industry Assistance
Low
Industry Globalization
Concentration Level
Low
Competition Level
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 39
SOURCE:
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SOURCE:
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Low
Medium
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Executive Summary | Key External Drivers | Current Performance

Industry Outlook | Life Cycle Stage
Executive
Summary
The Commercial Real Estate industry

specialize in a variety of real estate
activities, including brokerage, property
and facilities management, research and
analytics, consulting, valuation,
appraisal, construction and asset
management. Changes within the
commercial real estate market,
including vacancy rates, property values
demand for industry services. During
periods of economic growth, vacancy
rates typically fall, and property values
rise as demand for real estate increases.
Revenue will recover as incomes improve and

businesses expand
Business expansion creates demand for
centers, hotels, hospitals, apartment
buildings, manufacturing plants and
other commercial spaces. As property
owners and developers capitalize on the
need for new space, demand for
industry services rises. However,
because most projects take several years
to complete, there is a lag between
demand and building development.
In the five years to 2014, the
Commercial Real Estate industry has
transitioned away from the difficult
recessionary environment that was
characterized by tightened lending
Value of private nonresidential

construction
The value of nonresidential construction
received by real estate agents and
other real estate services included in the
industry. As the value of construction
rises, property transactions and agents
conditions and a severe decline in all

forms of real estate construction.
Businesses and individuals struggled
to secure financing for purchases at
the beginning of the five-year period,
and expansion plans were canceled or
put on hold. A drop in corporate
profit forced many businesses to
consolidate operations through
branch closures and workforce
reductions. Consequently, vacancy
rates soared, and commercial real
estate prices plummeted due to
weakened demand. Commercial real
estate markets did not show signs of
recovery until 2011, when the value of
private nonresidential construction
increased for the first time since the
recession. Overall, the Commercial
Real Estate industry has experienced
annualized growth of 2.4% over the
past five years. In 2014, the industry
is estimated to increase total revenue
by 6.1% to $957.4 billion in real
estate activity.
Industry recovery will likely continue
industry real estate brokers and
prospective buyers take advantage of
historically low property values. Over the
period, IBISWorld estimates industry
revenue to grow at an annualized rate of
3.7% to $1.1 trillion. Easing credit
markets will encourage new investment,
and consumer spending will yield new
demand for commercial and residential
real estate growth.
fees increase, which contribute to

industry revenue. The value of private
nonresidential construction is expected
to increase in 2014, presenting a
potential opportunity for the industry.
Consumer spending
businesses that rely on consumers for
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businesses by driving the performance of

the overall economy. Therefore, the
from higher consumer spending, which
raises demand for a variety of businesses
that require building space. Consumer
spending is expected to increase in 2014.
degree to which commercial space goes
unused in the United States. When the rate
indicating an oversupply of commercial
of businesses or an overall contraction in
vacancy rates discourage new commercial
expected to fall in 2014.

Yield on 10-year Treasury note
The high costs of purchasing property
and constructing new buildings
forces buyers to purchase on credit

and builders to seek financing for
new projects. Interest rates, reflected
by the yield on the 10-year Treasury
note, help determine the cost of
borrowing money for these activities.
When interest rates are low,
financing becomes more affordable;
adversely, higher interest rates make
debt more expensive. Although the
Federal Reserve intends to pressure
rates downward as unemployment
remains elevated, rates are currently
at record lows and are expected to
increase in 2014, posing a potential
threat to the industry.
Corporate profit
Companies use profit and cash reserves
to finance expansion, and strong
earnings can encourage investment in a
business. Higher corporate profit
encourages businesses to open new
establishments or purchase property,
boosting commercial construction and
real estate transactions. Corporate
profit is expected to increase in 2014.
Value of private nonresidential construction

650
18
600
16
550
14
500
$ billion

continued
12
450
10
400
350
Year 05
07
09
11
13
15
17
19
Year 06
08
10
12
14
16
18
20
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Renewed demand,
renewed growth
The Commercial Real Estate industry is

an integral part of the US economy,
encompassing a diverse set of companies
that build, manage, lease, buy and sell
properties across the retail, institutional,
multifamily residential, healthcare and
industrial markets. Industry revenue is
generated through construction fees
charged by general contractors (GCs);
the service fees and commissions that
agents, brokers and consultants receive;
and management fees and rent collected
by property owners, developers and real
estate investment trusts (REIT). With
such a range of activities spanning
the real estate spectrum, overall
industry performance is largely based
on nationwide business activity and
the economy.
As a result, the industry has only just
begun to recover. In 2009, the housing
market crisis had yet to improve, with
rapidly falling home prices and
thousands of foreclosures damaging
industry revenue. Weakened demand for
commercial space, as evidenced by high
Industry revenue
12
8
% change
Current
Performance
4
0
4
8
12
Year 06
08
10
12
14
16
18
20
vacancies, contributed to plummeting

commercial real estate prices and sharply
reduced demand for new commercial
construction. Industry revenue continued
its heavy decline with decreases of 8.7%
in 2009 and 8.3% in 2010. In 2014,
however, industry revenue is projected to
increase 6.1% to $957.4 billion, boosting
rate to 2.4%.
was drastic, causing heightened

unemployment and stagnant per capita
disposable income growth. By 2010,
however, household budgets began to
increase, and consumer spending has
increased at an average rate of 2.2% in the
credit market supported real estate

investments prior to the recession, and
the lag between the planning,
construction and completion of
developments resulted in overcrowded
construction plans. With all of this
newly developed space, business
closures during the recession led to a
enterprises, including retailers, hospitality

and entertainment properties and
apartment buildings, rely directly on
consumers for income. As consumer
spending returns to normal levels, demand
for these companies has grown following
the recession. Likewise, growing consumer
spending has encouraged upstream
manufacturing and service sectors to pick
unoccupied. In 2012, however, US

consumer spending grew 2.2%, the value
of private nonresidential construction
Cyclical growth in the US economy,

low interest rates and the booming
increased 7.0%. Downstream demand

for commercial real estate services has
continued to improve since, and
industry employment has earned its
long-awaited reprieve from the
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Renewed demand,
renewed growth
continued
Greater confidence
among construction
firms
industry employment will continue to

improve: total employment will grow
Construction activity accounts for an

estimated 43.4% of commercial real
estate revenue. The value of retail
construction has recovered steadily since
2010, growing at an average rate of 1.2%
value of residential construction is
expected to increase an additional 19.2%
Increasing profit and

industry growth
Improvements in construction activity

measured as earnings before interest and
taxes, fell to a low of 9.0% of revenue in
2010, from 16.4% prior to the housing
account for 14.2% of revenue in 2014.
Gradually recovering real estate sales,
values and development has enabled
Technology advancements have
launch of free listing websites, like

LoopNet, and property appraisal
databases have hurt real estate sales and
brokerage, as well as leasing and rental
Steady recovery
Renewed demand for apartments is

driven by the ongoing decline in
homeownership rates, young adults
capturing the majority of new job growth
and pent-up demand from the key
apartment demographic (i.e. 20 to 34
year olds). The apartment sectors
nationwide recovery and expansion is
1.9% to 5,280,609 employees, while

total industry wages will increase 5.2%
to $261.8 billion in total pay.
in 2014, which will have a major improve

on industry growth. These economic
improvements have aided establishment
growth among industry construction
establishments has increased at an
average rate of 0.2% from 2,143,995 in
2009 to 2,169,428 in 2014.
Free online real estate

services have limited the
inexpensive way to list real estate online.

real estate agents and middlemen,
allowing individuals to gain access to
potential buyers and lessors through free
listings. Other technological advances in
database aggregation, automated
valuation models and logistics
management have hurt consultants,
appraisers and warehouse developers and
operators, respectively.
retail and industrial sectors are expected

to experience slight gains in only the
most attractive primary markets.
Vacancy rates across the other
commercial real estate sectors
have begun a gradual decline. In 2014,
the value of private nonresidential
construction is expected to increase
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Steady recovery
continued
Industry
Outlook
a key indicator of future demand for

commercial real estate services, is
expected to grow 4.1% in 2014.
The Commercial Real Estate industry will

continue to rebound with the general
economy, particularly as labor markets
improve and construction markets
stabilize. As the unemployment rate
will rise, pushing down vacancy rates in
existing buildings. As this trend
continues, real estate values will increase
and the need for the construction of new
Investment
conditions
coped with the recession by running

leaner operations, they entered recovery
with above-average cash reserves. These
funds are expected to help fuel
expansion, leading to strong industry
growth for the 2014 and beyond.
As consumers renew
spending, investment in
shopping malls and other
outlets will grow
development consulting, commercial

leasing, brokerage and property
management will return.
Employment growth will support
consumer spending as individuals return
to work and disposable incomes increase.

As consumer spending improves, the
demand for retail space, commercial
centers and distribution centers will rise,
paving the way for investment in the
construction of shopping malls,
department stores, food retail outlets,
entertainment facilities and warehouses.
Improving credit conditions are also

forecast to spur investment in real
estate. Interest rates are forecast to
remain near historic lows during the
next few years, thanks to the Federal
Reserves policy of tying the funds rate
to unemployment levels. Lower yields
on government bonds like the 10-year
Treasury note have a two-fold positive
effect on the industry. First, lower rates
decrease the costs of borrowing money
to finance new construction and to
purchase property, encouraging
construction and investment.
Additionally, lower bond yields
encourage buyers to put money into
alternative investments, such as real
estate, that have higher potential yields.
With the potential for higher returns
and improvements in consumer

demand, individual investors and large
institutional investors, including
pension funds and real estate
investment trusts, are expected to
invest heavily in the commercial real
estate market over the next five years.
Rising international investment,
particularly into high-value urban
multifamily residential markets like
New York City and San Francisco, will
aid demand for new construction and
help raise property prices. This trend
may benefit property owners, who will
be able to justify higher rents for
tenants, as well as industry consultants
hired by foreign investors due to their
knowledge of local markets to facilitate
purchases made in the United States.
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Stronger numbers
As a result of improved economic

conditions, industry revenue is projected
to grow an additional 5.0% in 2015. In
forecast to continue its trend of strong
growth at an annualized rate of 3.7% to
$1.1 trillion. Low levels of construction in
recent years, when combined with the
strong return of business formation and
down and encourage new construction.
In the five years to 2019, the number
of commercial real estate
establishments is projected to rise at an
annualized rate of 1.7% to 2,356,321
companies, while industry employment
is projected to increase at an annualized
Service convergence
from a rise in corporate outsourcing

activity, as property owners and lessors
increasingly turn to industry operators,
such as property managers, real estate
consultants and asset managers, to reduce
rate of 2.6% to reach 6.0 million

people. Improved profit margins and
increased demand for commercial
property will support growth in the
number of operators and employees.
The incoming flux of new business
activity among real estate industry
participants will limit industry profit
(measured as earnings before interest
and taxes) to 13.1% of industry
revenue by 2019. Lower vacancy
rates, higher property values and
improved rental rates will encourage
entry to the industry, and competitive
challenge stemming from new firms
will put downward pressure on
industry profit margins.
Property managers will

expand their service
related services
managers will also expand their service

associated functions and into more tenantrelated services like facility management,
which includes duties related to heating,
ventilation and air-conditioning systems,
electric power, plumbing, lighting systems,
cleaning, decoration and security.
Additionally, facility managers may advise
tenants on real estate matters related to
downsizing or expanding operations.
While most firms in the industry
will remain focused on specific service
Threats and
competition
Factors that will likely constrain longterm demand for commercial real estate
include an increase in telecommuting,
teleconferencing and business
management strategies meant to
offerings, many in the real estate

service sector are expected to offer a
variety of services under one roof for
customers convenience. For example,
CBRE Inc., one of the largest real
estate services companies in the
world, operates segments that span
sales and brokerage, property
management, consulting and
development, offering large clients the
services otherwise provided by several
different companies.
downsize the permanent workforce,

and limit inventory. In some markets,
more tenants will look to advisors when
negotiating leases. Advisors will
10
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11
Threats and
competition
continued
arrangements like shorter leases; if the

tenants are successful, this factor will
increase property owners risks.
The industry is also projected to be
more conservative in terms of managing
debt and leveraging assets. The fallout
from the subprime mortgage crisis was a
reminder of the importance of

maintaining a strong balance sheet and
keeping debt ratios at manageable levels.
Ultimately, deleveraging is expected to
reduce risk, but it will also lower returns
short term.
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Life Cycle Stage
The industry is well established,

with no new markets
heavy market participation
% Growth in share of economy
No innovations are expected to dramatically

increase demand for industry services
20
Maturity
Quality Growth
Company
consolidation;
level of economic
importance stable
High growth in economic

importance; weaker companies
close down; developed
technology and markets
15
Key Features of a Mature Industry

Revenue grows at same pace as economy
Company numbers stabilize; M&A stage
Established technology & processes
Total market acceptance of product & brand
Rationalization of low margin products & brands
10
Quantity Growth
Many new companies;

minor growth in economic
importance; substantial
technology change
Industrial Building
Construction
Commercial Building Construction
0
Commercial Real Estate
Land Development
Municipal Building Construction
Decline
-5
Shrinking economic
importance
Database & Directory Publishing

-10
-10
-5
10
15
20
% Growth in number of establishments

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Industry Life Cycle

This industry
is Mature

typically fluctuates on a cyclical basis,
with annual movements dependent on
general economic conditions,
employment growth, property values,
private investment and rental yields. In
the 10 years to 2019, industry value
added (a measure of the industrys
contribution to the overall economy) is
expected to grow at an annualized rate
of 2.9%, while US GDP is forecast to
grow at an average 2.7% per year over
the same period. This strong growth
rate relative to US GDP would typically
indicate that the industry exists in its
growth phase, but the industrys growth
is uncharacteristically high as a result
of drastically increased postrecessionary demand for commercial
real estate services.
The industrys activities have
essentially remained the same over a
long period of time; however, since the
recession, property owners seeking to
lower their costs have begun to

outsource property management
activities to real estate services firms
that specialize in them. In addition,
public and other noncorporate users of
real estate, such as government
agencies and health and educational
institutions, have begun outsourcing
real estate activities as a means of
reducing costs. As a result, there are
growth opportunities for firms that can
provide integrated real estate services.
The proliferation of broadband
internet access may have an adverse
effect on the future of office tenant
demand, since this system improves
employees abilities to effectively work
from home, reducing the need for office
space. Internet services and
e-commerce websites may also cut
down on the demand for retail
shopping centers as individuals
increasingly look to the internet to
fulfill their shopping needs.
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Products & Markets
Supply Chain | Products & Services | Demand Determinants

Major Markets | International Trade | Business Locations
Supply Chain
KEY BUYING INDUSTRIES

42
Wholesale Trade in the US

Small wholesalers use industry operators to store merchandise and other goods.
44-45
Retail Trade in the US

Retailers use commercial real estate firms to rent space that is used for retail activities.
52
Finance and Insurance in the US

Many establishments in this sector require accurate valuations for financing and insurance
activities.
54111
Law Firms in the US

Lawyers working on property dispute cases use real estate appraisers and valuation firms to
determine the value of the holding.
99
Consumers in the US
Consumers use commercial real estate firms for housing and storage rentals.
KEY SELLING INDUSTRIES
Products & Services
23
Construction in the US
Specialty contractors are used for maintenance purposes and during the construction of
develop buildings.
51
Information in the US
Real estate agents and brokers use newspapers and other media for business and property
advertising.
51114
Database & Directory Publishing in the US

Real estate service firms use property and other information databases for reports, client
meeting and other real estate related activities.
51121
Software Publishing in the US

Real estate appraisers and valuation firms use software to help determine asset values and
develop reports.
54111
Law Firms in the US

Commercial real estate firms use council during property acquisition, lease negotiations,
development activities and project zoning filings.
56172
Janitorial Services in the US

Commercial property owners and management companies use janitors to ensure buildings are
properly cleaned and maintained.

comprises a diverse set of firms that
activities, including brokerage,
property and facilities leasing and
management, research and analytics,
consulting, valuation, appraisal,
construction and asset management.
These activities can be grouped into
five major segments: construction,
residential leasing, commercial leasing,
property and asset management and
sales and brokerage.
Construction
Construction activity accounts for an
estimated 43.6% of industry revenue.
Companies in this service segment
include national and international
general contractors (GCs) able to
undertake massive retail, institutional,
entertainment and hospitality projects,
such as shopping malls, hospitals,
sporting arenas and hotel casinos. GCs
also construct multifamily residential
structures. GCs typically assume all the
responsibility for the projects
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Products & Markets
Products & Services

continued
Products and services segmentation (2014)
6.3%
10.6%
Property and asset

management and consulting
Other activities
12.2%
43.6%
Sales and brokerage
Construction
12.4%
Commercial leasing
14.9%
Residential leasing
Total $957.4bn
completion, including hiring
subcontractors and procuring materials.
Most construction contracts are designbid-build, an arrangement in which the
property owner or developer hires the
architect and then accepts bids from GCs
to manage the build-out. During the past
contracts, in which the GC and architect
are the same entity, have become more
popular. As such, commercial
construction has experienced increasing
service convergence, in which larger
construction, consulting and
management services.
This segment also includes
redevelopment or remodeling work
conducted on existing buildings, which
property owners or developers often
choose over new construction during
market slumps. Occasionally, remodeling
involves altering the type of building (e.g.
it typically involves restoring an existing
premise to its original position within the
restored to a class-A rental through
internal renovations, new external
cladding, installing building automation
and upgrading facilities for modern data
and communication transmission.
work has grown as a share of this

segment, though new construction is
expected to pick up in 2014.
Commercial leasing
Commercial leasing is the second-largest
segment in this industry, accounting for
about 12.4% of industry revenue.
Property owners generate revenue
through rental income, net gains from
property sales and real estate brokerage
fees. According to US Census data and
IBISWorld estimates, about 90.4% of
commercial property owner income is
associated with rents. Rental rates are
generally determined by the type, class
and location of the leased property. Net
gains from sales account for about 4.1%
of commercial property owner income.
with general economic cycles since the
demand and valuation of real estate is
often based on business growth,
The remaining income for commercial
lessors (5.5% of commercial leasing
income) is associated with general fees,
such as late-payment penalty charges.
Falling property values and a strong
supply of vacant commercial space has
led to lower rental rates during the past
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Products & Markets
Products & Services

continued
share of overall revenue.

Residential leasing
The leasing of multifamily residential
property (i.e. apartment buildings, or
units) accounts for about 14.9% of
industry revenue. Apartments are
size and location of the property.
Apartments are also distinguished by
and amenities, such as gyms and pools.
On the higher end, some complexes also
personal security and dry cleaning
assistance. Apartment rental has grown
as the single-family housing market
collapsed and many consumers and
families were forced to begin renting.
Sales and brokerage
Real estate sales and brokerage activities
account for about 12.2% of revenue in
2014. Agents and brokers may represent
either the buyer or seller of a property
and receive a percentage of the sale
value as their commission or fee;
because most agents operate on a 100%
commission basis, these fees comprise
this segments revenue. Additionally,
this convention ties this segments share
of revenue directly to property values.
During periods of falling prices, agents
receive smaller fees, and when prices
appreciate quickly, agent commissions
increase. As such, this segments share
of revenue has fallen sharply during the
rising recently in the wake of
rebounding commercial property prices.
Property and asset management

and consulting
This group of real estate services is
estimated to contribute about 6.3% of
industry revenue. Property managers work
on behalf of owners and are responsible for
the daily upkeep and operation of a
building or property, including rent
maintenance. Property managers also act
as the liaison between owners and tenants
and often negotiate tenant leases and
process maintenance requests.
Real estate asset managers and
consultants provide long-term
strategic planning for clients investing
in real estate. Activities within this
segment include real estate
investment analysis and advice, estate
acquisitions and disposals, real estate
risk management, property finance
and loan advice and loan
restructuring. These services are
generally provided to commercialsector firms that have extensive real
estate portfolios. This segment also
includes real estate appraisal services,
which reassess the value of a property
based on current conditions.
Appraisal services come into high
demand during volatile periods when
property values rise or fall quickly; as
such, this service grew as a share of
revenue during the recession.
Other activities
Other activities include land development
and leasing services and the leasing of
storage and warehouse space. These
services combine to account for about
10.6% of industry revenue and have
increased slightly as a share of revenue
WWW.IBISWORLD.COM
17
Products & Markets
Demand
Determinants
Demand for commercial real estate is

generally associated with corporate
expansion and a rise in consumer
spending. Investment in commercial real
including the prevailing level of interest
into new premises or expand rental
accommodation; current and expected
rates of general economic growth;
expected yield on investment (both
long-term rental yield and speculative
capital gains); taxation treatment of
building investment compared with other
types of assets; vacancy rates of existing
building stock; and changes in the
structure, distribution and size of the
building construction vary according to
the type of building (e.g. hotels, retail
Office space demand
determined by general economic cycles,
as business expansion traditionally
coincides with strong economic growth.
insurance, communications, law and

entertainment. Typically, demand peaks
during periods of strong economic
growth, because the need for space rises
as new businesses enter the market and
The demand for space can also vary by
segments: Class A, Class B and Class C,
each of which denote a certain size, quality
of construction or location, which in turn
also impacted by corporate policies and
trends, such as telecommuting, which
reduces the need for space as employees
are allowed to work from home.

Additionally, the average age of commercial
demand for the addition of new stock or
the upgrade of existing stock.
Demand for retail and hotel space
The ability for retailers to expand services
or the rise of new entrants into the
marketplace is largely dependent on
consumer spending, as businesses must
expand operations. Retailers require
space that is highly visible and
conveniently located. Retailers that are
looking for space in malls generally rely
lease determinations. Hotel construction
is determined by growth in international
and domestic tourism; major cultural,
sporting, entertainment and business
events; growth in casino licenses; and an
areas existing supply of accommodation.
Apartment demand
Economic cycles yield varying results for
apartment rental. During times of strong
economic growth, individuals tend to
spend more money on living expenses,
driving up the demand for residential
leasing. At the same time, strong
economic growth may also lead to a rise
in homeownership levels, which can
US demographics are also strong
indicators of residential leasing and
construction demand, as homeownership
divorce trends and family sizes. Marriage
and divorce rates are important
indicators for rental demand because
singles tend to rent housing at higher
rates due to lower household incomes.
Birth rates and family sizes are also
important indicators of leasing demand
because larger families typically need the
In addition to demographics,
population trends tend to indicate the
WWW.IBISWORLD.COM
18
Products & Markets
Demand
Determinants
continued
demand for residential leasing.

Generally, densely populated areas such
as New York City or Los Angeles often
have lower homeownership rates than
rural areas. Cities are characterized by
homeownership costs that are
significantly higher than the national
average. In areas where
homeownership costs are significantly
higher than rental expenses, industry
demand tends to be high.
Municipal and industrial
building demand
The key determinants of demand vary
across the various building markets (e.g.
schools, hospitals, museums and law
Major Markets
courts); however, with the majority of

construction funded by public-sector
clients, the demand for industry services
is heavily weighted toward trends in
public sector expenditure.
The demand for industrial space is
largely dependent on market
conditions, industry trends and the
proximity of distribution channels.
Local taxes and regulations are also
important for determining the demand
for industrial space. Additionally, any
infrastructure developments or other
initiatives designed to improve
accessibility and distribution of
manufactured goods is also important
for demand.
Major market segmentation (2014)
9.2%
6.3%
Accommodation
32.6%
Industrial
Office
10.9%
Municipal and
institutional
18.6%
Residential
Total $957.4bn
can be divided into six major market
segments: office, retail, hotel and
motel accommodations, residential,
industrial and municipal. On an
aggregate basis, fluctuations in
revenue from each of these segments
are relatively stable since the
industry comprises a wide variety of
firms that offer a diverse group of
products and services. Additionally,
commercial lease contracts are
22.4%
Retail
typically five or more years, reducing

overall industry volatility.
Office
the type, style, age, condition, tenant

identity and location of the property. The
spaces are generally characterized as
WWW.IBISWORLD.COM
19
Products & Markets
Major Markets
continued
buildings that are managed

professionally and have high-quality
tenants, an excellent location and highquality building materials and common
occupy these properties. Class B
buildings are often slightly lower in
quality and craftsmanship in comparison
to Class A structures. Class B buildings
are usually newer, wood-framed
buildings or older, former Class A
buildings. These buildings are also not
located in excellent locations. Instead,
the suburbs or less-expensive business
districts. Class C buildings are the
cheapest buildings to rent and are
typically 15 to 25 years old.
focused on the central business districts
construction also occurs in suburban
areas. On CBD building projects, the
large-scale construction companies
dominate, while smaller contractors are
construction projects.
Retail
Retailers account for about 22.4% of
industry revenue. This market is largely
composed of shopping centers. Similar to
can be categorized by property class,
though classes are determined by sales
per square foot. The three property
classes are Class A, with tenant sales of at
least $400 per square foot; Class B, with
tenant sales of less than $400 per square
foot; and Class C, with tenant sales of less
than $250 per square foot. Simon
Property Group and General Growth
Properties are the two largest Class A
shopping center owners in the country.
Municipal and institutional
The municipal and institutional market
accounts for about 10.9% of revenue. This
market segment includes hospitals,

schools, universities, churches, prisons
and other government buildings.
Educational building construction
comprises one of the largest market
segments for this industry. Since the late
1990s, there has been a substantial lift in
public-sector funding to renovate
There is a growing trend for regional
school authorities (county or municipal)
to enter into long-term refurbishment
and maintenance contracts with largethe public schools within a jurisdiction.
Demand from the education and
healthcare construction markets has
as these markets do not generally follow
economic trends and did not experience a
contraction during the recession.
Residential
The residential market accounts for
about 18.6% of revenue in 2014 and
primarily includes apartment buildings
and complexes. The construction, leasing,
management and other industry services
related to the residential market have
years to 2014 as other markets more
closely tied to consumer spending
declined. Demand for apartments has
also risen as the national homeownership
rate has declined. This market is most
lucrative in high-density urban areas,
such as New York City, where downtown
locations are desirable and owners can
justify high rates.
Industrial
The industrial market accounts for about
9.2% of revenue in 2014. Industrial
properties are generally categorized into
two distinct property segments, light and
heavy, depending on the type of activity
that is being conducted at the site. A light
industrial facility usually employs fewer
than 500 people and has an emphasis on
WWW.IBISWORLD.COM
Products & Markets
Major Markets
continued
activities other than manufacturing.

Typically, light industrial activities
include printing plants, material testing
laboratories and assemblers of data
processing equipment. All light industrial
facilities are also freestanding and
In contrast, heavy industrial facilities
usually have a higher number of
employees per industrial plant and can
also be categorized as manufacturing
plants. Overall, industrial tenants are
engaged in a wide variety of businesses,
including manufacturing, wholesale
trade, distribution and professional
services. Prospective tenants usually
seek property in areas located close to
suppliers, customers and staff. In
addition, industrial properties
generally have convenient access to
major transportation systems,
including interstate highways, railroads
and airports.
International Trade
The industry comprises commercial

property that is located in the United
States, and international trade is not
applicable. However, the industry does
Accommodation
The hotel and motel market (i.e.
lodgings or commercial
accommodation) is expected to
generate about 6.3% of industry
revenue in 2014. Over the past five
years, demand for hotel and motel
construction has fallen in response
to contractions in consumers
ability and willingness to spend on
nonessential travel. With slow
income growth and rising
unemployment during the
recession, households were forced
to forgo taking vacations to save
money; likewise, business travel
decreased markedly as businesses
tightened their budgets. With
lower demand for accommodation,
demand for new hotels and motels
stayed low. This market is
expected to remain a minor part of
industry revenue.
more information on industry

globalization and foreign investment,
please see the Industry Globalization
section of this report.
20
WWW.IBISWORLD.COM
21
Products & Markets

Business Locations 2014
West
New
England
AK
0.2
Great
Lakes
WA
ND
MT
2.5
Rocky
Mountains
ID
OR
1.2
West NV
0.9
1.6
SD
0.1
WY
0.2
MN
0.1
0.1
Plains
CO
0.5
KY
0.6
OK
0.6
NC
1.9
TN
AZ
NM
2.3
0.4
Southwest
TX
6.9
HI
0.7
Additional States (as marked on map)

1 VT
2 NH
3 MA
4 RI
5 CT
6 NJ
7 DE
8 MD
0.1
1.4
0.3
3.5
2.7
0.3
SC
Southeast
0.4
MS
AL
0.7
0.9
GA
2.8
0.4
LA
0.7
FL
6.9
Share of Revenue (%)
0.3
2.3
AR
0.2
1.3
16.6
WV VA
2.6
0.6
1.5
CA
West
2.8
MO
KS
2.1
OH
1.2
4.8
2.8
IN
IL
0.4
UT
PA
2.6
0.5
0.2
1 2
3
NY
13.9
5 4
MI
1.1
IA
NE
0.1
WI
ME
MidAtlantic
9 DC
0.3
Less than 3%
3% to less than 10%
10% to less than 20%
20% or more
WWW.IBISWORLD.COM
22
Products & Markets
Business Locations
The geographical distribution of the

the size and distribution of the US
population, which is mainly driven by
economic activity since individuals tend to
work and live in areas with strong business
and employment prospects. Local
regulations and tax laws also play a role in
determining the location of industry
participants. As a result of the general
economic and population distribution
within the United States, the majority of
industry participants are located in the
Mid-Atlantic, Southeast and West regions.
California, Texas and New York have the
highest percentage of industry revenue due
to the value and size of their local
economies and populations. California is
the largest economy in the United States
and the most heavily populated state in the
country. Texas is the second-largest
economy in the United States, and it is also
the location of the majority of the Fortune
500 companies headquarters. New York is
the third-largest economy in the United
States and is home to the most expensive
commercial real estate in the United States.
market and includes the Federal Reserve,
During the past decade, the US
population has been migrating toward
warmer climates, such as the Sunbelt
region. According to the US Census, the 10

counties with the largest population
increases were in California, Nevada,
Arizona and North Carolina. As the
population migrates toward these states,
homes and retail centers increases. As a
result of this trend, the number of
establishments and revenue generated by
these sectors has outpaced the overall
industry. As more individuals migrate
toward these climates, more agents are
needed to facilitate property purchases and
lease agreements. Development and leasing
activity also rises because more space is
needed to meet higher demand.
As a result of the long-term population
trends, the majority of industry
participants are located in the MidAtlantic, West and Southeast regions, with
activity concentrated on the states with the
largest metropolitan populations (i.e.
Florida, New York, California, Texas and
estimated to account for about 49.1% and
42.3% of industry revenue and
establishments, respectively.
Mid-Atlantic
The Mid-Atlantic region is expected to
account for about 23.1% of industry
revenue and 17.2% of industry
establishments in 2014. This region is the
Establishments, population and employment

Region
Southeast
West
Southwest
Rocky Mountains
New England
Mid-Atlantic
Great Lakes
Plains
Establishments
(%)
Population
(%)
Employment
(%)
24.9
20.1
10.9
5.6
4.2
17.2
11.1
6.1
25.4
17.0
12.1
3.5
4.7
15.6
15.0
6.6
23.2
20.9
11.2
4.1
4.5
18.3
11.9
5.9
SOURCE: US CENSUS BUREAU
WWW.IBISWORLD.COM
23
Products & Markets
largest market within the Commercial Real

Estate industry due to the presence of large
metropolitan areas, including New York
and Philadelphia. This region has a high
insurance, biotechnology and healthcare.
Within the residential sector,
homeownership tends to be lower in these
major metropolitan areas since the value of
real estate is relatively high.
30
20
10
Southwest
Southeast
Rocky Mountains
Plains
New England
Mid-Atlantic
West
Great Lakes
West
The West region is expected to account
for 22.1% of industry revenue in 2014,
making it the second-largest market in
the Commercial Real Estate industry.
This region comprises 17.0% of the US
population and 20.1% of the industrys
establishments. It contains a greater
number of larger real estate service
Share of Revenue
Population
name recognition and a highly skilled

workforce. The concentration of larger
development of the industry in the region
and a higher level of franchising and
states. The high revenue proportion
the size and value of the regional
economy and population. The bulk of
activity in this region was concentrated in
California (with 16.6% of industry
estate and the size of the local economy.
Distribution of share of revenue vs.

population
Business Locations
continued
Southeast
The Southeast region is the thirdlargest market in the Commercial
Real Estate industry, accounting for
about 19.4% of industry revenue.
The number of industry
establishments is reflective of the
regions growing population,
considerable amount of
development activity and
investment in income producing
properties. The region is a strong
destination for baby boomers and
retirees looking for better weather
and warmer climates.
Largest states by revenue

States
California
New York
Florida
Texas
Illinois
Revenue
(%)
Establishments
(%)
Population
(%)
Employment
(%)
16.6
13.9
6.9
6.9
4.8
13.7
9.7
8.6
6.8
3.5
12.1
6.3
6.1
8.1
4.2
14.6
9.4
8.5
7.6
3.8
SOURCE: US CENSUS BUREAU AND IBISWORLD
WWW.IBISWORLD.COM
24
Competitive Landscape
Market Share Concentration | Key Success Factors | Cost Structure Benchmarks

Basis of Competition | Barriers to Entry | Industry Globalization
Market Share
Concentration
Level
Concentration in
this industry is Low

has a low level of market share
concentration. The industry is highly
diverse and covers a large sector of the
economy, and most companies operate
in only one or two segments (e.g. most
construction firms are not involved
with property management). Therefore,
it is difficult for any one company to
attain a significant share of revenue
across the entire industry.
The vast majority of companies
operating in the industry are small,
owner-operators. The top four industry
operators account for less than 5.0% of
industry revenue, with Turner being the
only company to generate more than
1.0% of the industrys total revenue.
Nonemployers account for about 80.0%
of industry enterprises, according to
IBISWorld estimates and US Census
much smaller percentage of industry
revenue, about 17.9%.
Despite low concentration, industry
participants are consolidating
operations. Customers in the
nonresidential market are increasingly
services across a wide geographic area.
As a result, a number of large mergers,
acquisitions and strategic alliances have
taken place. In addition, there has also
away from partnerships to corporate
Enterprises by employment size (real

estate services)*
Employees
1 to 4
5 to 9
10 to 19
20 to 49
50 to 99
100+
*Estimates
Enterprises (%)
93.9
4.0
1.2
0.7
0.1
0.1
SOURCE: US CENSUS BUREAU AND IBISWORLD
The construction segment is

characterized by its many small to
medium-size contractors that operate
in relatively narrow regional markets.
In addition to local operators, this
segment also includes national firms
that operate across multiple sectors,
including multifamily, commercial,
municipal and other nonresidential
building construction.
The real estate leasing, brokerage
and other services segment comprises a
diverse set of firms that provide a wide
variety of real estate activities,
including brokerage, property and
facilities management, research and
appraisal and asset management. Most
firms are small local operators, but this
segment includes large global
companies. However, most firms
generally specialize in only a few of
these activities, so there is no dominant
firm within the industry.
WWW.IBISWORLD.COM
25
Key Success Factors

IBISWorld identifies
250 Key Success
Factors for a
business. The most
important for this
industry are:
Good project management skills

developments, renovations and repairs
can reduce operation costs and increase
Maintenance of excellent
customer relations
Understanding the needs of, and having
good relationships with existing and
gaining new business and retaining
existing customers.
Superior financial management
A significant amount of capital and
debt is used to finance property
acquisitions. Therefore, companies
must be able to properly manage
Cost Structure
Benchmarks
cash flows, reserves and debt levels

to grow and effectively manage
property portfolios.
Proximity to key locations
Location is everything in this industry
because tenants pay a premium for
buildings located near business
centers, transportation hubs and
entertainment venues. As a result,
buildings in metropolitan areas have
higher rental income.
Access to highly skilled workforce
Real estate firms that employ highly
skilled staff with specialized
knowledge can develop a reputation
for quality service and increase their
bargaining power.

activities, including brokerage, property
and facilities management, research and
appraisal, construction and asset
management. As a result, there is no
Therefore, the industry cost structure
analysis is a weighted average of its three
main segments: construction, property
leasing and real estate services.
Construction activity accounts for
43.6% of industry revenue, making it
the largest segment in the Commercial
Real Estate industry. The construction
sector mainly comprises small to
medium-size general contractors who
use subcontractors on a per-project
fairly capital intensive because

equipment and machinery, such as
cranes and earthmoving vehicles, are
leased on a per-project basis. On the
highly labor intensive due to large

subcontractor payments.
Property leasing is the second largest
segment in this industry, accounting for
27.3% of industry revenue. For property
owners, most costs are centered on
building acquisition and property
maintenance. Acquisition expenses
taxes. In contrast, the majority of
construction companies are wages, as
each segment is relatively labor intensive.
Real estate services account for 29.1% of
industry revenue, but this segment
comprises the majority of industry
specialize in brokerage, property and
facilities management, research and
analytics, consulting, valuation, appraisal
and asset management.
Profit
before interest and taxes) is estimated
to account for 14.2% of industry revenue
WWW.IBISWORLD.COM
26
has improved slightly since 2009

because of gradual recovery in property
values and increasing interest in new
construction projects, both of which
and property lessors that comprise the
larger segments of the industry. In the
construction segment in particular,
compete for a pool of projects. As the
supply of construction projects
slightly less intense. Additionally,
interest expenses make up a large part
purchasing properties requires
leverage a large portion of their real
estate holdings in an attempt to raise
capital for daily operations, acquisitions
and property development.
Wages
In 2014, total wages (including in-house
employees salaries, subcontractor
payments and commissions) are
estimated to account for 63.3% of
revenue. Though most service industries
included in the commercial real estate
sector pay employees on a salary basis,
leads subcontractor payments to take up
a large portion of the average cost
structure. As such, in-house wages
account for 27.3% of revenue, while
subcontractor wages make up 33.5% of
the total. Additionally, because real estate
agents and brokers are typically paid on a
100% commission basis, their wages
comprise a third wages segment and
account for an estimated 2.5% of total
industry revenue.
Employment costs are slightly higher
than 2009 levels of 61.0%. Steadily
increasing property values have directly
Sector vs. Industry Costs

Average Costs of
all Industries in
sector (2014)
Industry Costs
(2014)
17.7
14.2
100
Profit
Wages
Purchases
Depreciation
Marketing
Rent & Utilities
Other
80
Percentage of revenue
Cost Structure
Benchmarks
continued
60
46.4
63.3
40
20
10.0
6.3
5.5
12.0
2.1
3.1
9.0
4.2
4.9
1.3
WWW.IBISWORLD.COM
27
Cost Structure
Benchmarks
continued
panels, structural timber, metal cladding,

commissions, which are determined as a
set percentage of the value of the
property transaction. Additionally,
lower property values forced lessors to
conditions. As real estate prices and
additional construction projects return
years, wages are forecast to grow further
as a share of revenue.
Purchases
Industry purchases are estimated to
account for 9.0% of revenue in 2014. The
largest industry purchases are associated
with acquiring property, which is
the industry has high interest expenses
and amortization, or the gradual
elimination of a liability, such as a loan,
from a companys balance sheet. Since
the subprime crisis, amortization
expenses have risen on average for the
ratios and improve liquidity.
The other major purchase segment
incurred in the industry is construction
materials. Construction material prices
with most costs related to ready mixed
concrete, glass, structural steel, concrete
Basis of Competition
Level & Trend
Competition in
this industry is
Medium and the
trend is Increasing
purchased electric power, fuels and

lubricants. In addition to material
purchases, industry participants also buy
machinery and equipment, though heavy
and specialized machinery is bought or
leased by subcontractors hired by the
general contractor.
Other costs
On average, depreciation charges for the
industry account for 3.1% of industry
revenue. Commercial and investment
real estate properties experience annual
wear and tear or loss of utility, so
companies depreciate real estate assets
over time to account for this deduction.
This segment also includes the purchase
of heavy capital equipment used in
construction separate from the
equipment used and purchased by
subcontractors. Other costs include rent
and utilities (4.2% of revenue), which are
such as downtown business districts.
Marketing expenses are estimated at
1.3% of revenue. Finally, property
expense for the industry, since owners,
not tenants, are primarily responsible for
the upkeep of their properties.
potential investors include domestic

basis of the quality and range of services
estate is highly competitive, as property
owners generally compete for tenants
on location, rental rates, amenities and
design. For property purchases,
competition often exists where land is
scarce or demand is high. Bidders must
generally dependent on asset levels,
cash savings and credit history.
Commercial real estate owners and
estate investment trusts, life insurance

companies, pension trusts, trust funds,
partnerships and individual investors.
Commercial real estate services
Corporations, institutions and investors
that outsource real estate services prefer
services across a wide geographic area.
Larger clients are increasingly seeking
WWW.IBISWORLD.COM
28
continued
property management, brokerage and

research). Many property owners prefer
this structure, because it is easier and
sites that will attract tenants and their

customers, select appropriate building
properties to prospective tenants.
all of their real estate needs, as opposed

to hiring separate businesses depending
on a particular business function. This
on all of the management needs and
decisions to a third party.
Location is also an important
price, quality, location and substitutes,

contrast, retail property owners
generally compete on their ability to
attract shoppers and retain anchor
tenants. Industrial property owners
mainly compete with one another on
quality, price, and proximity to
distribution networks. Residential
property owners also compete on
may be able to gain the business of local

appliances; and on the higher end, some
have an advantage over other companies
when clients are seeking services that
require specialized knowledge of the
characteristics of a region. This can also
assist in the accuracy of information,
creating a major competitive advantage.
consistently provide reliable and accurate
information of properties and real estate
asset values will gain repeat business and
referrals from other clients.
personnel, as strong promotional and
selling skills are essential in this industry,
particularly with regards to tenant
contract negotiations. At the same time,
property managers must be able to
demonstrate to potential customers their
ability to maximize property values by
keeping vacancy rates low and properly
keeping maintenance schedules.
Commercial and residential leasing
The ability to properly analyze market
conditions and identify future demand is
imperative for real estate lessors to
remain successful. Firms that are
purchasing buildings, acquiring land or
developing property must be able to
identify the supply and demand patterns
within local markets, select appropriate
and dry cleaning assistance.

Construction
Commercial contractors typically
compete on price, but each operator
differentiates itself on the basis of
reputation, technical capacity and
efficiency. Price is always a major
factor, but it is more important for
smaller-scale projects and publicly
funded developments. The larger
building companies may achieve some
competitive advantage from
economies in marketing projects,
purchasing construction materials,
acquiring land for development and
accessing skilled subcontractors.
Large-scale construction projects are
typically awarded through a bidding
process called tender. Under this
structure, a building owner or property
developer solicits contractors for bids on
a particular construction project. Tenders
are conducted publicly or privately,
depending on the customer. Under a
public tender, commercial contractors
are solicited through the media or
government publications; closed tenders
occur when a client invites a select few
contractors to quote a project. The
WWW.IBISWORLD.COM
29
continued
selection of contractors for a closed

tender is based on reputation (past
performance) and close relationships
Tendering on extremely large or complex
large-scale players.
Most small- to medium-size building
activities to a local market. Small-scale
operators rely on word-of-mouth
referrals to obtain contracts, but they also
advertise in general media. Some players
also use the internet to promote their
businesses. It is common for smaller
operators to establish relationships with
prime contractors and property
developers within a local region or
specialized area.
Barriers to Entry
Level & Trend
Barriers to Entry
in this industry are
Medium and Steady
Barriers to entry for new firms in this

industry can vary significantly by
state, city and operating segment.
Established areas are harder to
penetrate due to scarcity of land,
resources and potential tenants. For
example, a major existing shopping
center with long term lease
agreements and good anchor tenants
may make it difficult for a new entrant
to successfully enter the market.
Additionally, high vacancy rates in a
market may also reduce the viability
of introducing new space into a
market. New entrants may also be
prohibited from entering a real estate
market due to permit requirements or
zoning restrictions.
Commercial property ownership is
capital intensive, as money is needed to
purchase property, develop land and
maintain the building. Access to capital
markets is often restricted based on the
size, diversification and track record of
the commercial real estate owner.
Therefore, newly formed commercial
real estate companies or individuals
External competition
Work-from-home programs and
telecommuting, e-commerce,
videoconferencing and other internetbased services are increasingly hurting
the demand for commercial real estate.
The ability to work remotely has
allowed firms to downsize office space,
decreasing the amount of space
necessary to run their businesses. The
rise in e-commerce has also hurt
demand for retail space, as Americans
increasingly elect to buy goods online
instead of making purchases at
traditional brick-and-mortar stores.
E-commerce has also improved supply
chain management, allowing firms to
cut inventories, which reduces the need
for warehouse space.
Barriers to Entry checklist

Competition
Concentration
Life Cycle Stage
Capital Intensity
Technology Change
Regulation & Policy
Industry Assistance
Level
Medium
Low
Mature
Low
Medium
Medium
Low
that have small property portfolios may

experience difficulty in obtaining
financing from capital markets in their
acquisition of real estate.
The industry is also subject to various
local, state and federal regulations. These
policies and regulations include licensing
responsibilities and anti-fraud
prohibitions. In addition, commercial
properties must adhere to real estate
laws, including zoning, ordinances and
licensing requirements.
Entrants to commercial
construction face difficulty in quickly
WWW.IBISWORLD.COM
30
Barriers to Entry
continued
establishing a foothold in the market

as firms rely on reputation and
referrals to attract business. Existing
firms have established relationships
with subcontractors, material
suppliers, financial institutions and
property developers. New entrants
will likely find it difficult to establish
credentials in several of the more

specialized and lucrative segments of
the market, notably the capacity to
construct complex industrial buildings
and processes, such as steel mills,
mineral smelters, microchip wafer
plants, clean rooms, industrial ovens,
kilns and incinerators.
Industry
Globalization
The Commercial Real Estate industry has

a low level of industry globalization, as
the industry is highly fragmented, with
the majority of companies operating in a
revenue. The majority of industry

globalization is largely associated with
investment activity.
In addition to investment trends, US
activities require a strong knowledge of

local markets and local market trends,
to continue expanding overseas in an

attempt to boost revenue growth and
diversify risk. The ability to expand
overseas also helps operators meet client
needs, as domestic companies rely on
industry operators to facilitate plant
expansions, real estate investments and
company acquisitions and divestitures.
Level & Trend
Globalization in
this industry is
Low and the trend
is Increasing
corporations involved in construction,

property management and other real
account for a fraction of total industry
WWW.IBISWORLD.COM
31
Major Companies
There are no Major Players in this industry | Other Companies
Other Companies
Firms in the Commercial Real Estate

industry perform a variety of tasks:
brokerage, property and facilities
management, research and analytics,
consulting, valuation, appraisal,
construction and asset management. As
within the industry, and operators
generally specialize in one real estate
segment. For instance, the industry
includes companies that specialize in
commercial and industrial construction
(e.g. The Turner Corporation); real
estate brokerage, consulting and other
services (e.g. CBRE Inc.); commercial
leasing (e.g. Simon Property Group
Inc.); residential leasing (e.g. Equity
Residential); and asset management
(e.g. First American Corporation).
Within the commercial and residential
leasing segment, the industry is
dominated by large real estate
investment trusts (REITs), such as AMB
Property, Apartment Investment and
Management Company (AIMCO) and
Boston Properties. In addition to REITs,
property owners include large investment
companies and private operators. Asset
management companies dominate the
multifamily market, accounting for seven
out of the 10 largest apartment owners in
MMA Financial LLC, Boston Capital,
National Equity Fund Inc., Enterprise
Community Investment Inc., The
Corporation, Pinnacle and PNC
MultiFamily Capital.
The Turner Corporation
Estimated market share: 1.1%

The Turner Corporation is owned by
Hochtief, which operates in the United
States through the Turner Construction
Company subsidiary. Turner
Construction operates in a variety of
markets, including residential, non-
residential, government, commercial and

industrial. With such diverse business
activities, Turner has been able to ride
out cyclical changes in building activity,
switching from predominantly
institutional contracts in the early 1990s,
then commercial construction near the
end of the decade and now back to
institutional construction since the
mid-2000s. Engineering News Record
(ENR) ranked Turner as the fourthlargest contractor in the world in its Top
400 Contractors survey in 2013.
In terms of commercial construction,
construction sector, but it also has a
strong presence in the hotel construction
market. Recent projects include a
on Bostons waterfront and a
$216.0-million nuclear power
engineering campus in Pittsburgh for
Westinghouse Electric Company that
totaling 844,595 square feet.
Turner Construction also has a
prominent presence in the municipal
building industry, notably in the
healthcare sector. Recent healthcare
projects include the Yale University
Health Services Center ($98.0 million)
and the University Medical Center at
Princeton in Plainsboro Township, NJ
($411.0 million). Turner was awarded
contracts for a $291.0- million medical
$300.0-million replacement hospital for
Santa Clara Valley Health and Hospital
System in San Jose, CA.
Other Turner municipal clients include
research facilities, the justice sector and
the arts sector. Recently completed
projects include the Art Institute of
Chicagos Modern Wing, the Freedom
Forum Newseum and the redevelopment
of the Lincoln Center in New York,
including the Alice Tully Hall renovation
and expansion. In 2014, The Turner
WWW.IBISWORLD.COM
32
Major Companies
Other Companies
continued
Corporation is expected to generate

revenue of $9.4 billion. Though it
occupies a minor portion of the
Commercial Real Estate industry, it holds
a leading market share in the Commercial
Building Construction industry
(IBISWorld report 23332a).
Simon Property Group Inc.
Estimated market share: Less than 1.0%

Simon Property Group is the largest
public commercial real estate owner in
the United States, with 241.0 million
square feet of leasable space in 325
properties across the United States, Asia
York Stock Exchange under the symbol
SPG and is also part of the S&P 500.
Simons revenue is expected to increase
to $5.2 billion in 2014, owing to an
aggressive expansion strategy through
joint venture properties in Japan, South
Korea, Mexico, and Malaysia.
Simon specializes in retail centers,
including regional malls, shopping
centers and strip malls. The companys
investments tend to be in metropolitan
companys portfolio is largely composed
of retail centers, which consist of both
anchor department stores and smaller
retailers. Since Simons holdings are
mainly retail properties, it is highly
This factor is especially true of smaller
retail store tenants at Simons malls,
since many of these establishments have
short-term leases compared with anchor
stores. Short-term leases generally range
from several months to years, while
years long.
are regional malls, Premium Outlet
locations, The Mills locations, community
or lifestyle centers and international
operations. The companys regional malls
division consists of 171 centers, which
range in size from 400,000 square feet to
2.0 million square feet. The Premium

Outlet Centers division contains 36
centers, ranging in size from 200,000 to
600,000 square feet. These centers are
located in tourist destinations and near
large metropolitan areas, such as New
York City, Los Angeles and Boston. The
community or lifestyle centers are
designed to service neighborhoods and
communities by taking advantage of
existing mall operations. These centers
feature entertainment options, retail
stores, condominium complexes and
Simon has also expanded its operations
outside the United States, with joint
ventures in Italy, Poland and France.
Other foreign joint-venture investments
include Premium Outlet Centers in
Mexico, Japan, South Korea and China.
CBRE Inc.

Formerly known as CB Richard Ellis
Group, CBRE Inc., based in Los
Angeles, is one of the largest
commercial real estate service
companies in the world. With a history
dating back to 1906, the company now
in the United States, with the remainder
spread across the rest of North America,
South America, Europe, the Middle
publicly traded on the NYSE under the
ticker symbol CBG, and it is also the
only commercial real estate services
company listed in the Fortune 500.
The company provides commercial
real estate services under the CB Richard
Ellis brand name and development
services under the Trammell Crow brand
include the Americas, EMEA (Europe,
global investment management and
development services. The Americas
segment provides services to the United
WWW.IBISWORLD.COM
33
Major Companies
Other Companies
continued
States, Canada and selected parts of Latin

America. It is also the largest group
estimated 61.9% of revenue. The global
investment management group provides
investment management services to
clients, such as pension plans and
foundations endowments, on a global
scale. Finally, development services is a
wholly owned subsidiary under Trammell
Crow Company. The division provides a
wide variety of real estate development
services for all types of property types,
destinations, including Faneuil Hall

Marketplace in Boston, South Street
Seaport in New York City and Water
about 18,000 acres of preplanned
residential properties, which made it
particularly susceptible to the fall in
property prices during the subprime
crisis and ensuing real estate collapse.
healthcare facilities.
The Americas division comprises two
distinct groups: advisory services and
outsourcing services. The advisory
bankruptcy after falling property values

led its leverage ratio (or liabilities as a
percentage of the current value of assets)
to reach 83.0%. The company had
amassed about $27.0 billion of debt
during a growth spree leading up to
2009. As credit markets tightened
dramatically, the company was unable to
and owners a full spectrum of real estate

services, including debt and equity
companys only available option. In

November 2010, GGP exited bankruptcy,
valuation services. The outsourcing

services sector provides services that are
more applicable to industry
responsibilities, including property
management, marketing, leasing,
management, project management,
facilities management and portfolio
management. In 2014, CB Richard Ellis
Groups revenue in the Americas is
expected to increase to $4.3 billion. Prior
to the recession, the company expanded
operations through both organic growth
and corporate acquisitions.
General Growth Properties Inc.

General Growth Properties (GGP) is one
of the largest REITs in the United States.
The company owns or manages more
than 200 regional shopping malls in 44
states and has international operations in
Brazil, Costa Rica and Turkey. In
communities. The company is known for
its symbolic properties and tourist
Hughes Corp., another REIT. In 2014,

company revenue is expected to reach
about $2.5 billion as real estate prices
rise and consumer spending recovers,
making many of GGPs mall and other
retail properties more valuable.
Jones Lang LaSalle Inc.

Jones Lang LaSalle Inc. (JLL) was
formed in 1997 after the merger of
LaSalle Partners, a Texan company
established in 1968, and Jones Lang
Wootton, a British firm established in
1783. The company is headquartered
in Chicago and employs about 36,200
people in 160 offices located across 50
countries. The company provides a
wide range of property-related
services, including property
development management, facilities
management, agency leasing, tenant
representation, property consultancy,
financial management, property
valuations, auctions, leasing and other
real estate services.
WWW.IBISWORLD.COM
Major Companies
Other Companies
continued
JLL divides its business operations

into two primary segments: real estate
services (RES) and investment
management (IM). The RES segment
accounts for about 87.0% of total revenue
and is further divided into three
geographic regions: the Americas (30.0%
of RES revenue); Europe, Middle East
(36.0%). These units collectively manage,
own or lease property throughout the
world. In addition, RES represents
tenants during the acquisition and
disposition of real estate, and provides
valuation services. The IM division
provides investment management
services mainly to institutions,
a global basis.
The valuation services sector
under RES helps clients determine
market values for office, retail,

industrial and mixed-use
properties. These may involve
valuing a single property or a global
portfolio of multiple property
types. Valuations are completed for
a variety of purposes, including
acquisitions, dispositions, debt and
equity financing, mergers and
acquisitions, securities offerings
(including initial public offerings)
and privatization initiatives. Clients
are made up of occupiers, investors
and financing sources from the
public and private sectors. The
company provides services to
clients in nearly every developed
country outside the Americas.
In 2014, JLL is expected to
generate revenue of $1.8 billion in
the Americas.
34
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35
Operating Conditions
Capital Intensity | Technology & Systems | Revenue Volatility

Regulation & Policy | Industry Assistance
Capital Intensity
Level
The level of capital

intensity is Low
The Commercial Real Estate industry has a

medium level of capital intensity. Though
most industry segments are service related,
the leasing of heavy construction
equipment raises average depreciation
costs across the industry. Nevertheless, for
every part of the industry, wages comprise
a larger share of revenue than capital costs.
Total wage costs (including in-house
salaries, subcontractor payments and sales
commissions) are estimated to account for
60.1% of revenue in 2014, compared with
3.1% of revenue absorbed by depreciation.
As such, the average operator spends about
$0.11 in capital investment for every $1.00
spent on labor.
The industrys capital intensity
level has changed little since 2009,
when the average company spent
Capital intensity
Capital units per labor unit

0.5
0.4
0.3
0.2
0.1
0.0
Economy
Real Estate and

Rental and
Leasing
Commercial
Real Estate
Dotted line shows a high level of capital intensity

about $0.13 in capital investment

per dollar of labor. Although
capital spending has decreased
Tools of the Trade: Growth Strategies for Success

Investment Economy
Recreation, Personal Services,

Health and Education. Firms
benefit from personal wealth so
stable macroeconomic conditions
are imperative. Brand awareness
and niche labor skills are key to
product differentiation.
Information, Communications,
Mining, Finance and Real
Estate. To increase revenue
firms need superior debt
management, a stable
macroeconomic environment
and a sound investment plan.
Commercial Building
Construction
Industrial Building
Construction
Construction
Traditional Service Economy
Wholesale and Retail. Reliant

on labor rather than capital to
sell goods. Functions cannot
be outsourced therefore firms
must use new technology
or improve staff training to
increase revenue growth.
Capital Intensive
Labor Intensive
New Age Economy
Commercial Real
Estate
Wholesale Trade
Retail Trade
Change in Share of the Economy
Old Economy
Agriculture and Manufacturing.
Traded goods can be produced
using cheap labor abroad.
To expand firms must merge
or acquire others to exploit
economies of scale, or specialize
in niche, high-value products.
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36
Capital Intensity
continued
slightly in recent years, a

significant decrease in capital
investment is not anticipated in
Technology
& Systems
Technology is used across the industry to
Level
The level of
Technology Change
is Medium
the near future as capital-intensive

construction starts pick up over
the next several years.
accounting and bookkeeping.

Improvements in technology have
lowered the costs associated with
processing payments and analyzing data.
This trend is expected to continue,
especially as technology systems decrease
in cost. Investment real estate (IRE)
software systems provide sophisticated
transaction processing and analysis tools.
IRE systems can be broken down into
two categories: operational programs and
decision-making support systems.
Operational systems support day-to-day
activities and are transactional in nature
(e.g. property maintenance, management
and accounting), while decisional support
systems consolidate operational data
with industry benchmarks and market
assumptions to enable a strategic analysis
of an asset portfolio (e.g. to measure
support investment decisions).
Level
The level of
Volatility is Medium
A higher level of revenue

volatility implies greater
industry risk. Volatility can
negatively affect long-term
strategic decisions, such as
the time frame for capital
investment.
When a firm makes poor
investment decisions it
may face underutilized
capacity if demand
suddenly falls, or capacity
constraints if it rises
quickly.
The US Green Building Council

establishes guidelines and standards for
called Leadership in Energy and
Environment Design (LEED)
substantially reduce operating costs,
particularly with respect to utilities such
as power and water.
On the other hand, some
developments in technology have the
potential to hurt industry participants.
The recent rise in telecommuting can
potentially hurt the office market as
more individuals work from home.
Online shopping will command an
increasing share of retail sales,
reducing the space requirements of
retail stores. Factories and warehouses
may also need less space as computer
systems more efficiently manage
inventories and purchases.
Volatility vs Growth
1000
Revenue volatility* (%)
Revenue Volatility
The industry has also improved
Hazardous
Rollercoaster
100
10
Commercial Real Estate
1
0.1
Stagnant
30
10
Blue Chip
10
30
50
70
Five year annualized revenue growth (%)

* Axis is in logarithmic scale
WWW.IBISWORLD.COM
37
Revenue Volatility
continued
The industry has a medium level of

revenue volatility and generally follows
the performance of the overall
economy. The direct sources of industry
revenue include rental income, interest
income, brokerage fees and
commissions and contractor fees
charged for construction. On the whole,
these revenue streams depend on
demand for commercial space;
additionally, high property values
increase the fees received by brokers
and also allow general contractors to
receive larger earnings for building
projects. As such, both the steep drop
in property values set off by the

subprime crisis in the residential
market and the overall economic
recession damaged revenue streams
across the board during the past five
years. Revenue growth has fluctuated
fairly widely, including steep drops of
11.9% and 16.6% in 2009 and 2010, and
growth of 5.0% expected in 2014.
However, as economic conditions
stabilize and recovering business
activity leads to higher demand for new
commercial space, revenue is expected
to grow more steadily during the next
five years and cause volatility to soften.
Regulation & Policy
Industry participants are required to

meet various building and safety codes
before providing commercial real estate
to companies and individuals, and these
regulations must be met throughout the
construction of new buildings as well.
Regulations generally relate to handicap
adhere to environmental standards, such

as minimums for the amount of waste
material recycled on the building site. In
addition, various laws and regulations
impose liability on real property owners
or operators for the cost of investigating,
cleaning up and removing property
contamination caused by hazardous or
toxic substances. A strong example of this
type of regulation relates to the use and
cleanup of asbestos, particularly within
older buildings.
856 through 860 of the Internal Revenue

Code. As a REIT, these organizations
must distribute, at minimum, an amount
equal to 90.0% of taxable income and
must distribute 100.0% of taxable
income to avoid paying corporate federal
income taxes. REITs are also subject to a
number of organizational and
operational requirements to retain their
REIT status. They must be structured as
a corporation, business trust or similar
association and be managed by a board
of directors or trustees. They must
derive at least 75.0% of their gross
income from rents or mortgage interests
and at least 75.0% of their total
investment assets must be in real estate.
If an organization fails to qualify as a
REIT in any taxable year, the
organization will be subject to federal
income tax on taxable income at regular
corporate tax rates. Even if the
Real estate investment trusts

Real estate companies and developers
can elect to be taxed as a real estate
investment trust (REIT) under Section
REIT, it may be subject to state

and local income taxes and to federal
income tax and excise tax on its
undistributed income.
Level & Trend
The level of
Regulation is
Medium and the
trend is Steady
restrictions and general construction
WWW.IBISWORLD.COM
38
Industry Assistance
Level & Trend
The level of
Industry Assistance
is Low and the
trend is Steady
The industry does not receive direct

government subsidies or assistance.
values for commercial properties that

contain long-term leases.
indirectly from government programs

that have focused on improving lending
practices. These programs largely arose
in response to the subprime mortgage
crisis and the subsequent collapse of US
credit markets. To improve lending, the
federal government launched the $700
billion Trouble Asset Relief Program
(TARP), which focused on strengthening
Residential segment
Governmental programs, principally
administered by the Department of
Housing and Urban Development or
In addition to TARP, the Federal

Reserve launched the $1 trillion Term
Asset-Backed Securities Loan Facility
(TALF) originally designed to support
the issuance of asset-backed securities
collateralized by student loans, auto
loans, credit card loans and loans
guaranteed by the Small Business
Administration. However, in May 2009,
the Federal Reserve expanded the
provisions of the program to include
commercial mortgage-backed securities
(CMBS). The program offers five-year
loans to buy new AAA-rated
commercial mortgage-backed
securities. This lifeline was an
attempt to boost the commercial
property sector by making older loans
eligible for an emergency program and
revive troubled credit markets.
Lastly, the government has
increasingly entered into sale and
leaseback contracts with commercial
real estate companies, which benefits
the industry by boosting the demand
for non-residential property.
Government tenants are also low risk
and considered secure creditors, which
is important in assessing property
provide mortgage insurance, favorable

property owners and lessees. However,
as a condition of receipt of assistance
under these programs, the properties
must comply with various requirements,
which typically limit rents to preapproved amounts.
The low-income housing tax credit was
enacted by Congress to encourage new
construction and rehabilitation of
existing rental housing for low-income
households and to increase the amount of
income levels. It was created by the Tax
Reform Act of 1986 as an alternate
method to fund housing for low- and
moderate-income households. It has
been in operation since 1987. In
establishing the tax credit incentive,
Congress recognized that a private-sector
developer may not receive enough rental
income from a low-income housing
project to both cover the costs of
developing and operating the project, and
To spur investment, Congress authorized
allocate tax credits to qualifying housing
projects. The credits may be shared
among the owners of a project (equity
investors), much as income and losses
are shared among business partners for
tax purposes.
WWW.IBISWORLD.COM
39
Key Statistics
Industry Data
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Sector Rank
Economy Rank
Industry
Revenue Value Added
($m)
($m)
886,763.0 436,339.3
950,245.6 447,088.4
960,006.6 447,233.7
932,404.7 430,250.9
851,639.3 374,082.9
781,012.9 317,312.9
791,547.7 337,488.3
816,256.9 349,840.1
901,902.3 408,489.9
957,363.6 427,451.9
1,005,333.5 428,113.7
1,045,099.1 457,475.2
1,080,031.7 468,969.3
1,109,981.2 477,353.4
1,146,202.7 495,756.2
1/33
1/33
3/1304
3/1304
Establishments
2,430,622
2,485,426
2,410,176
2,219,777
2,143,995
2,101,895
2,105,422
2,084,743
2,167,604
2,169,428
2,230,890
2,243,414
2,295,260
2,302,483
2,356,321
1/33
3/1303
Employment Exports
5,498,039
-5,733,190
-5,669,167
-5,408,438
-5,119,786
-4,899,166
-4,874,463
-4,893,050
-5,184,005
-5,280,609
-5,475,475
-5,606,345
-5,757,067
-5,856,484
-6,014,117
-1/33
N/A
5/1304
N/A
Imports
---------------N/A
N/A
Wages
($m)
245,685.3
257,989.5
256,192.4
244,702.4
229,304.2
219,686.3
222,713.9
228,217.9
248,853.2
261,828.0
273,493.4
281,968.2
290,860.1
297,298.0
306,610.1
1/33
3/1304
Industry
EstablishRevenue Value Added
ments
Enterprises Employment Exports
(%)
(%)
(%)
(%)
(%)
(%)
7.2
2.5
2.3
1.9
4.3
N/A
1.0
0.0
-3.0
-4.7
-1.1
N/A
-2.9
-3.8
-7.9
-8.1
-4.6
N/A
-8.7
-13.1
-3.4
-2.3
-5.3
N/A
-8.3
-15.2
-2.0
-1.6
-4.3
N/A
1.3
6.4
0.2
0.2
-0.5
N/A
3.1
3.7
-1.0
-1.1
0.4
N/A
10.5
16.8
4.0
3.6
5.9
N/A
6.1
4.6
0.1
-0.2
1.9
N/A
5.0
0.2
2.8
2.6
3.7
N/A
4.0
6.9
0.6
0.3
2.4
N/A
3.3
2.5
2.3
2.2
2.7
N/A
2.8
1.8
0.3
0.1
1.7
N/A
3.3
3.9
2.3
2.2
2.7
N/A
3/33
15/33
27/33
25/33
22/33
N/A
213/1304
388/1304 875/1303 910/1303 575/1304
N/A
Imports
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Wages
(%)
5.0
-0.7
-4.5
-6.3
-4.2
1.4
2.5
9.0
5.2
4.5
3.1
3.2
2.2
3.1
5/33
210/1304
Enterprises
2,387,815
2,432,312
2,317,666
2,128,863
2,078,867
2,044,917
2,048,805
2,025,288
2,098,289
2,095,124
2,150,627
2,157,529
2,205,144
2,208,120
2,257,688
1/33
3/1303
Annual Change
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Sector Rank
Economy Rank
Key Ratios
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Sector Rank
Economy Rank
IVA/Revenue
(%)
49.21
47.05
46.59
46.14
43.93
40.63
42.64
42.86
45.29
44.65
42.58
43.77
43.42
43.01
43.25
23/33
352/1304
Imports/
Demand
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Figures are inflation-adjusted 2014 dollars. Rank refers to 2014 data.
Exports/
Revenue
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Revenue per
Employee
($000)
161.29
165.74
169.34
172.40
166.34
159.42
162.39
166.82
173.98
181.30
183.61
186.41
187.60
189.53
190.59
18/33
832/1304
Wages/Revenue
(%)
27.71
27.15
26.69
26.24
26.93
28.13
28.14
27.96
27.59
27.35
27.20
26.98
26.93
26.78
26.75
9/33
370/1304
Employees
per Est.
2.26
2.31
2.35
2.44
2.39
2.33
2.32
2.35
2.39
2.43
2.45
2.50
2.51
2.54
2.55
26/33
1148/1303
Value of Private NonDomestic residential Construction

Demand
($b)
N/A
421.2
N/A
451.5
N/A
509.0
N/A
540.2
N/A
438.2
N/A
366.3
N/A
374.1
N/A
421.6
N/A
438.3
N/A
464.1
N/A
505.0
N/A
550.4
N/A
585.1
N/A
581.0
N/A
609.3
N/A
N/A
N/A
N/A
Domestic
Demand
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Value of Private Nonresidential Construction

(%)
7.2
12.7
6.1
-18.9
-16.4
2.1
12.7
4.0
5.9
8.8
9.0
6.3
-0.7
4.9
N/A
N/A
Average Wage
($)
44,685.99
44,999.29
45,190.48
45,244.56
44,787.85
44,841.57
45,689.94
46,641.24
48,004.04
49,582.92
49,948.80
50,294.48
50,522.27
50,763.91
50,981.73
10/33
627/1304
Share of the
Economy
(%)
3.07
3.06
3.01
2.90
2.59
2.15
2.24
2.26
2.60
2.65
2.57
2.65
2.62
2.59
2.63
1/33
3/1304
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40
Jargon & Glossary
Industry Jargon
CLASS A BUILDING A commercial office building that

commands the highest rent due to the attractiveness
and prestige associated with its location, tenancy,
amenities and overall desirability.
LEADERSHIP IN ENERGY AND ENVIRONMENT
DESIGN (LEED) An environmental building certificate
program established under the US Green Building
Council that certifies buildings meet energy-efficiency
and green requirements.
IBISWorld Glossary
BARRIERS TO ENTRY High barriers to entry mean that

new companies struggle to enter an industry, while low
barriers mean it is easy for new companies to enter an
industry.
CAPITAL INTENSITY Compares the amount of money
spent on capital (plant, machinery and equipment) with
that spent on labor. IBISWorld uses the ratio of
depreciation to wages as a proxy for capital intensity.
High capital intensity is more than $0.333 of capital to
$1 of labor; medium is $0.125 to $0.333 of capital to $1
of labor; low is less than $0.125 of capital for every $1 of
labor.
CONSTANT PRICES The dollar figures in the Key
Statistics table, including forecasts, are adjusted for
inflation using the current year (i.e. year published) as
the base year. This removes the impact of changes in
the purchasing power of the dollar, leaving only the
real growth or decline in industry metrics. The inflation
adjustments in IBISWorlds reports are made using the
US Bureau of Economic Analysis implicit GDP price
deflator.
DOMESTIC DEMAND Spending on industry goods and
services within the United States, regardless of their
country of origin. It is derived by adding imports to
industry revenue, and then subtracting exports.
EMPLOYMENT The number of permanent, part-time,
temporary and seasonal employees, working proprietors,
partners, managers and executives within the industry.
ENTERPRISE A division that is separately managed and
keeps management accounts. Each enterprise consists
of one or more establishments that are under common
ownership or control.
ESTABLISHMENT The smallest type of accounting unit
within an enterprise, an establishment is a single
physical location where business is conducted or where
services or industrial operations are performed. Multiple
establishments under common control make up an
enterprise.
EXPORTS Total value of industry goods and services sold
by US companies to customers abroad.
IMPORTS Total value of industry goods and services
brought in from foreign countries to be sold in the
United States.
REAL ESTATE INVESTMENT TRUST (REIT) A legal

entity that uses pooled investor capital to purchase and
manage income property or mortgage loans. To qualify
as a REIT, the entity must distribute at least 90.0% of
taxable income.
VACANCY RATE The amount of real estate space
unoccupied as a percentage of total available space.
INDUSTRY CONCENTRATION An indicator of the

dominance of the top four players in an industry.
Concentration is considered high if the top players
account for more than 70% of industry revenue.
Medium is 40% to 70% of industry revenue. Low is less
than 40%.
INDUSTRY REVENUE The total sales of industry goods
and services (exclusive of excise and sales tax); subsidies
on production; all other operating income from outside
the firm (such as commission income, repair and service
income, and rent, leasing and hiring income); and
capital work done by rental or lease. Receipts from
interest royalties, dividends and the sale of fixed
tangible assets are excluded.
INDUSTRY VALUE ADDED (IVA) The market value of
goods and services produced by the industry minus the
cost of goods and services used in production. IVA is
also described as the industrys contribution to GDP, or
profit plus wages and depreciation.
INTERNATIONAL TRADE The level of international
trade is determined by ratios of exports to revenue and
imports to domestic demand. For exports/revenue: low is
less than 5%, medium is 5% to 20%, and high is more
than 20%. Imports/domestic demand: low is less than
5%, medium is 5% to 35%, and high is more than
35%.
LIFE CYCLE All industries go through periods of growth,
maturity and decline. IBISWorld determines an
industrys life cycle by considering its growth rate
(measured by IVA) compared with GDP; the growth rate
of the number of establishments; the amount of change
the industrys products are undergoing; the rate of
technological change; and the level of customer
acceptance of industry products and services.
NONEMPLOYING ESTABLISHMENT Businesses with
no paid employment or payroll, also known as
nonemployers. These are mostly set up by self-employed
individuals.
PROFIT IBISWorld uses earnings before interest and tax
(EBIT) as an indicator of a companys profitability. It is
calculated as revenue minus expenses, excluding
interest and tax.
WWW.IBISWORLD.COM
Jargon & Glossary
IBISWorld Glossary
continued
VOLATILITY The level of volatility is determined by

averaging the absolute change in revenue in each of the
past five years. Volatility levels: very high is more than
20%; high volatility is 10% to 20%; moderate
volatility is 3% to 10%; and low volatility is less than
3%.
WAGES The gross total wages and salaries of all

employees in the industry. The cost of benefits is also
included in this figure.
41
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Commercial Real Estate in the US February 2014

Moving on up: Demand for commercial real

IBISWorld Industry Report NN007

About this Industry

24 Market Share Concentration

Key External Drivers

25 Key Success Factors

40 Jargon & Glossary

25 Cost Structure Benchmarks

12 Industry Life Cycle

14 Products & Markets

36 Technology & Systems

14 Products & Services

37 Regulation & Policy

www.ibisworld.com | 1-800-330-3772 | info @ibisworld.com

Commercial Real Estate in the US February 2014

About this Industry

This industry is composed of

The primary activities of this industry are

real estate. Other related services,

Leasing nonresidential buildings, structures and land

The major products and services in this industry are

23721 Land Development in the US

Commercial Real Estate in the US February 2014

About this Industry

buying, selling and renting real estate.

For additional information on this industry

IBISWorld writes over 700 US

Commercial Real Estate in the US February 2014

Annual Growth 09-14

Annual Growth 14-19

Revenue vs. employment growth

Products and services segmentation (2014)

Key External Drivers

Property and asset

Office rental vacancy

Sales and brokerage

Life Cycle Stage

Commercial Real Estate in the US February 2014

Executive Summary | Key External Drivers | Current Performance

The Commercial Real Estate industry

Revenue will recover as incomes improve and

Key External Drivers

Value of private nonresidential

conditions and a severe decline in all

fees increase, which contribute to

Commercial Real Estate in the US February 2014

businesses by driving the performance of

expected to fall in 2014.

forces buyers to purchase on credit

Value of private nonresidential construction

Key External Drivers

Commercial Real Estate in the US February 2014

The Commercial Real Estate industry is

vacancies, contributed to plummeting

was drastic, causing heightened

credit market supported real estate

enterprises, including retailers, hospitality

unoccupied. In 2012, however, US

Cyclical growth in the US economy,

increased 7.0%. Downstream demand