Table of Contents

What Are the Main Segments of the Real Estate Sector?

By

Greg DePersio

Updated March 01, 2024

Reviewed by

Thomas Brock

Fact checked by

Pete Rathburn

Key Takeaways

The main segments of the real estate sector are residential, commercial, and industrial real estate.
Real Estate Investment Trusts, or REITs, are companies that invest in real estate, and pass on the rental income to investors as dividends.
Residential real estate is a major source of consumer wealth, with median home prices exceeding $400,000.

Residential Real Estate

The residential sector focuses on the buying and selling of properties used as homes or for non-professional purposes. The residential real estate sector is comprised of single-family homes, apartments, condominiums, planned unit developments, and more. As of 2024, this segment of the real estate industry has slightly fallen from the 2022 peak, after steadily increasing in value for several decades. In December 2023, median home prices were up at approximately $417,700, while the Case-Shiller National Home Price Index reached a high of 311.825.

While there has been a lot of discussion on whether younger generations such as Millennials and Gen Z are still buying property, the trend towards urbanization and growth of large cities will definitely inform residential real estate prices for years to come.

Commercial Real Estate

The commercial sector consists of real estate used for business purposes; common types include shopping malls, retail, office spaces, hotels, or other spaces used for business purposes. Some of the latest estimates of the commercial real estate market for 2024 show a valuation of approximately $25 trillion. However, as prices fluctuate in the global economy, a number of investors have shown hesitance to continue investing in the commercial real estate segment.

According to Deloitte's 2024 commercial real estate outlook, approximately half of North American commercial real estate companies expect it to become more difficult and more expensive to borrow capital.

Industrial Real Estate

The industrial real estate segment is comprised of properties used for manufacturing and production, such as factories, plants, and warehouses. Utility companies such as PG&E, for example, will own a lot of industrial real estate as assets, including but not limited to power plants that work to generate electricity.

Metrics Used in the Real Estate Sector

The different segments have different metrics that investors and analysts use to gauge the health of the real estate industry. All three segments feature publicly traded real estate investment trusts, or REITs, portfolios of properties whose stock prices investors frequently use to determine and analyze industry trends.

REITs in the residential sector include Essex Property Trust Inc. (ESS) and National Retail Properties Inc. (NNN). Home prices also serve as a gauge for the health of this segment, although following the housing market crash of 2008, special attention has been paid to ensuring that home prices do not reflect an inflated housing bubble.

In the commercial real estate sector, the largest REITs include Simon Property Group (SPG) and Brookfield Property (BPYUP). Investors in this sector also look at sales data for office buildings and retail developments and lease price trends for office and retail space.

ProLogis (PLD), Rexford Industrial (REXR), and PS Business Parks (PSB) are some of the most well-known REITs in the industrial real estate segment. Apart from REIT stock prices, leading indicators for the industrial real estate sector include goods consumption, industrial production, port traffic, and truck tonnage.

How Do You Invest in REITs?

A real estate investment trust (REIT) is a company that invests in real estate properties, and passes on rental income to the shareholders. Private REITs are only accessible to institutional investors, although retail investors can get exposure through mutual funds. In addition, there are also publicly-traded REITs that trade on the stock market, just like an ordinary company.

How Do You Invest in Real Estate?

The simplest way to invest in real estate is by buying a house, land, or building, although this also comes with the costs of management and maintenance. You can also invest in real estate by buying shares of a real estate investment trust (REIT), which manages a portfolio of real estate and passes the income to its investors.

Is Homeownership a Good Investment?

Homeownership is considered a reliable source of generational wealth, since it allows families to reduce their monthly housing expenses and raise their disposable income. In addition, residential properties tend to gain value over time, and there are generous incentives for taxpayers that buy a first family home.

The Bottom Line

Real estate is the market for fixed properties, such as land, homes, and buildings. The main segments of the real estate sector are residential, industrial, and commercial real estate.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

Federal Reserve Economic Data. "S&P CoreLogic Case-Shiller U.S. National Home Price Index."
Federal Reserve Economic Data. "Median Sales Price of Houses Sold for the United States."
Statista. "Commercial Real Estate—United States."
Deloitte. "2024 Real Estate Outlook."

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