A:

The commercial and residential real estate industry generated an estimated $3 trillion in 2014, with some 35% of sector revenue coming from leasing activities. Other revenue was attributed to net gains from property sales, brokerage fees and rental income. Most estimates of total global gross domestic product fall in the $75 trillion to $90 trillion range, meaning the real estate sector makes up between 3.33% and 4% of total world output.

Defining the Global Real Estate Sector

As an industry, real estate activity is defined as any economic transaction related to the purchase, sale, owner-operation or lease of property. This also includes income-generating residential properties, such as apartment buildings and single-room rentals.

Commercial companies are the largest global players in the sector. A commercial company might manage retail malls, own hotel chains or lease out restaurant spaces or hunting and fishing property.

Real estate services are included in the sector as well. Examples of real estate services include brokerages, property management, appraisers, investment property analysts and other consultants.

Impact on Global Economy

As far as production factors – land, labor and capital – are concerned, the real estate sector directly correlates to using land and generating rental income. There is little doubt that the efficacy of real estate markets significantly affects global economic output.

Proof of this can be seen in the financial crisis of 2007-2008. Two major industries were involved: real estate and finance/banking. Single-family home construction and mortgages became overleveraged and improperly valuated. When real estate prices declined, purchases and rents dried up, threatening much of the Western world with recession.

Even though total revenue from real estate transactions only accounts for 3% to 4% of total world output, it is likely that real estate's impact on the global economy is exponentially greater than that.

RELATED FAQS
  1. What are the main segments of the real estate sector?

    Identify the three primary segments of the real estate sector and the metrics used by investors and analysts to gauge the ... Read Answer >>
  2. What does asset management mean in regards to real estate?

    Find out what role asset managers play in the real estate markets, how real estate portfolios are selected and why entrepreneurial ... Read Answer >>
  3. How can I make equity investments in real estate?

    Invest in real estate equity through buying and selling real property or through other more liquid investments like real ... Read Answer >>
  4. What factors drive share prices in the real estate sector?

    Discover the main factors that tend to drive share prices in the real estate sector and some equity evaluation metrics specific ... Read Answer >>
  5. How does the risk of investing in the real estate sector compare to the broader market?

    Learn about the high volatility of the real estate sector and how conservative investors gravitate toward real estate investment ... Read Answer >>
Related Articles
  1. Investing

    Real Estate Vs. Stocks: Which One's Right For You?

    There are ups and downs for both real estate and stock investments, so before diving in, know the differences between the two.
  2. Investing

    A Guide to Real Estate Investing

    Investing in real estate is a popular choice for good reasons, but it's more complicated than owning your typical stocks and bonds.
  3. Investing

    Add Some Real Estate To Your Portfolio

    From REITs to owning your own home, find out how diversify your portfolio with real estate assets.
  4. Investing

    Key Reasons To Invest In Real Estate

    There has been a lot of negativity over the real estate sector since 2008. Here are the reasons why you should be investing in it.
  5. Financial Advisor

    Why Real Estate is a Good Fit for Older Investors

    Real estate investing can be a good fit for older investors. Here are three reasons why.
  6. Financial Advisor

    How Advisors Help Retirees Earn Income Through Real Estate

    Renting real estate can produce passive income and tax breaks for retirees.
  7. Investing

    Flipping Houses: Is It Better Than the Buy and Hold Strategy?

    Real estate investors can choose to flip a property or hold it. Find out which strategy may best for you.
  8. Investing

    4 Ways to Value a Real Estate Rental Property

    Several approaches to evaluate real estate for investment purposes.
  9. Investing

    Simple Ways to Invest in Real Estate

    Owning property isn't always easy, but there are plenty of perks. Here are some ways to invest in real estate.
RELATED TERMS
  1. Investment Real Estate

    Real estate that generates income or is otherwise intended for ...
  2. Commercial Property

    Real estate property that is used for business activities. Commercial ...
  3. Property Management

    The administration of residential, commercial and/or industrial ...
  4. Real Property

    Any property that is attached directly to land, as well as the ...
  5. Rental Real Estate Loss Allowance

    A federal tax deduction of up to $25,000 that is available to ...
  6. Real Estate Limited Partnership - RELP

    A limited partnership entity organized to invest in real estate. ...
Hot Definitions
  1. IRR Rule

    A measure for evaluating whether to proceed with a project or investment. The IRR rule states that if the internal rate of ...
  2. Short Covering

    Short covering is buying back borrowed securities in order to close an open short position.
  3. Covariance

    A measure of the degree to which returns on two risky assets move in tandem. A positive covariance means that asset returns ...
  4. Liquid Asset

    An asset that can be converted into cash quickly and with minimal impact to the price received. Liquid assets are generally ...
  5. Nostro Account

    A bank account held in a foreign country by a domestic bank, denominated in the currency of that country. Nostro accounts ...
  6. Retirement Planning

    Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve ...
Trading Center