After coming up with your tech start up/product idea for the commercial real estate market, one of the first questions you will ask (or be asked) is “What is the size of the US commercial real estate market?”
It’s generally accepted that the size of the US market is very very large. If you do your research and look at presentations from other CRE startups and tech companies the number you will often hear thrown around is $9 Trillion. It’s such an enormous number that it doesn’t really feel right putting it in your assumptions (let alone saying it out loud). That number is used to define the size of the industry by “asset class”. In other words, if you assumed there were 100 billion square feet of commercial space with an average value of $100 per square foot you get a $10 Trillion asset class. If you were to apply these assumptions on a global scale you come up with a gigantic number.
But is that really the size of your opportunity? Perhaps you are targeting asset management or property management. What is a conservative amount of money spent on managing these assets. Lets say the typical owner spends 3% annually on management of their property (for example, a 50,000 square foot property worth $5 million would equal $150,000 spent annually on management). That gives you a total US market size of $270 Billion. And of that 3% how much is spent on tech/IT? 1% or $1,500. The total market opportunity is now $2.7 Billion. And you expect to get 10% market share which makes your idea a $270 million dollar business. 5% would be $135 million, etc.
If your start up is going after total marketing dollars spent then you have to do a similar exercise based on vacancies and annual commissions earned as the size of your opportunity.
Once you do a top down down approach its always a good idea to validate the numbers with a bottoms up approach by looking at a single asset/property and multiplying from there.