An Alternative Approach to Evaluating Commercial Real Estate Markets

two people looking at a report

One-dimensional tier and ranking systems are commonly used in commercial real estate to evaluate metropolitan markets for consideration. However, these models condense complex market characteristics into a single score, providing only limited information that investors can use to evaluate and compare different markets.

The NAIOP Research Foundation commissioned the authors of a 2020 Foundation report, A New Look at Market Tier and Ranking Systems, to develop an alternative model for evaluating commercial real estate markets.

The authors consulted with industry practitioners and analyzed 15 years of market data to develop and test multiple two-dimensional models for evaluating the 50 largest commercial real estate markets in the U.S. by multiple market characteristics such as size and risk.

The resulting report, A Two-Dimensional Approach to Evaluating Commercial Real Estate Markets:

  • Evaluates four models for comparing industrial and office markets using different variables along the axes of a two-dimensional grid.
  • Reveals how investors and developers can use a two-dimensional analysis to identify markets that align with their strategy and risk tolerance.
  • Demonstrates that market size and average transaction prices do not reliably predict risk.

Read the full report.