By: Maria Sicola, Charles Warren, Ph.D., and Megan Weiner, CityStream Solutions, LLC
Professionals commonly analyze and compare individual U.S. commercial real estate markets by dividing them into ranked tiers based on their investment potential or growth characteristics. Although the methodologies they use to create these rankings are broadly similar from one report to the next, each is slightly different. As a result, cities are ranked differently in different reports. This can sometimes lead to confusion as industry participants sort out which markets are the best candidates for new investment. Adding to the potential for confusion, different analysts use different terms (e.g., “Tier 1,” “Primary,” “24-hour,” “Gateway”) to describe which markets they think are the top markets in the industry.
The NAIOP Research Foundation commissioned this report to examine how tier and ranking systems are currently developed and used, their advantages and disadvantages, and ways they could potentially be improved. The authors of the report interviewed many of the brokers, consultants and academics who develop these ranking systems, reviewed recent examples of different ranking methodologies and compared these to their analysis of market and census data. This research produced several findings: