Methodology
Market Sizing Methodology
How we estimate the size of global commercial and listed real estate markets
01
Size of the Total Real Estate Market
We estimate the size of individual country commercial real estate markets using a Gross Domestic Product (GDP) top-down approach and aggregate their values to arrive at a global estimate. Individual countries are in varying stages of development, therefore country estimates are adjusted to account for the economic situation based on the FTSE Country Classification.
In developed countries, high-quality commercial real estate represents approximately 45% of GDP. In emerging countries this figure is lower. Estimates are based on a formula devised by Prudential Real Estate Investors (PGIM Real Estate), as published in "A Bird's Eye View of Global Real Estate Markets: Update February 2012" — Paul Fiorilla, Manidipa Kapas, and Youguo Liang, February 2012.
▶For developed markets, 45% of GDP is applied
▶For emerging markets, further adjustments are made using the formulas below
Formulas
Variable Definitions
| REi | Country high-quality commercial real estate value |
| GDPi | Country Gross Domestic Product |
| GDHi | Country Gross Domestic Product per capita |
| GDPadj | USD 20,000 for the year 2000, adjusted annually using the US inflation rate |
GDP Weighting
GDP numbers, and hence the total value of real estate, are updated when the OECD publishes new GDP figures. GDPi within the REi formula is calculated on a weighted basis: the latest available value carries a weight of 40% (t), t−1 carries 30%, t−2 carries 20%, and t−3 carries 10%. This weighted approach dampens the effects of GDP and currency fluctuations on the real estate value estimate.
Weighting scheme: t (40%) · t−1 (30%) · t−2 (20%) · t−3 (10%)
02
Size of the Listed Real Estate Market
The calculation of the size of the total listed real estate market is based on the Industry Classification Benchmark (ICB) system provided by FTSE. Consistent with the FTSE EPRA Nareit Global Real Estate Indexes, the starting point is defined by the index Ground Rules.
Initial Universe
The Initial Universe consists of companies with the following ICB classifications:
- Sector 351020 — REITs
- Subsector 35101010 — Real Estate Holdings and Developers, within ICB Real Estate Industry sector code 35
Additional Inclusions
The universe may also include:
- Companies with ICB Subsector 30204000 (Closed End Investments) where the majority of revenue is derived from real estate activities
- For emerging countries, companies with ICB code 40202010 (Home Construction) that derive the majority of their revenue from relevant real estate activities
Market Capitalisation
All irrelevant subsectors under ICB Industry sector code 35 are excluded. To derive the value of listed real estate markets, full market capitalisation of listed companies is applied.
