by

Stuart A. Feldstein

President, SMR Research Corporation


Age of U.S. Commercial Buildings

At the end of 2021, the average U.S. commercial building was about 53 years old (53.03 years).

This finding is a slight increase over prior years. When we looked at building age in 2011, and in 2014, and again in 2017, the average was almost exactly 50 years old. But beginning in 2018 the average age began to increase.

So, new buildings pop up, while all others get older – and the net result had been no real change in average age. In the last four years though, the percentage of older buildings has crept up.

Chain drug stores (Walgreens, Rite-Aid, etc.) had the lowest average age in our analysis at 24 years.

This underscores the rapid recent spread of chain drug stores; good news for them, not so much for the independent drug stores these chains are gradually replacing.

At the other end of the spectrum, our two categories for mixed-use buildings had averages of 65 and 82 years. This means the average mixed-use building was built all the way back in 1940's.

By “mixed use,” we mean single buildings that have stores and apartments above them, for example.

The more recently constructed buildings by type also included the commercial condo buildings now so familiar in so many places.

Both commercial/industrial condos and commercial office condos had an average age below 35 years.

As one might guess, the oldest buildings also include boarding houses, cemeteries (they often do have buildings on them), and museums and libraries. At an average age of 72 years, bars and taverns are rather old as well.

Airports are not generally new — but the buildings on airport property often are, with an average age of only 32 years. More in tune with the common wisdom, medical office buildings (a huge category) also are relatively new.

Building Age Data breaks down the average age by building type.


Values of Commercial Buildings

The average market value of a U.S. commercial building was $1.4 million at the end of 2021, up from $1.27 million when we did similar research in 2014.

If $1.4 million seems surprisingly low to you, it may be due to what comes rapidly to mind when you think of a “commercial building.” You may think of a landmark like the Empire State Building.

But the more typical commercial building is like the dozens you pass on your morning commute — most of them small and unremarkable. For every Empire State Building, there are thousands of local gas stations, beauty parlors, karate dojos, convenience stores, and small shops.

Indeed, the $1.4 million figure is a mean average. A median (midpoint) value would be lower.

These conclusions flow from a study of market values of 9.1 million U.S. commercial buildings where values were available to us. The values do include land value. All 9.1 million properties had a combined value of $12.7 trillion, an impressive number.

What is the actual split between modest and expensive buildings in terms of quantity?

Of the 9.1 million buildings, fully 8.7 million were worth $5 million or less. The other 442,530 had a value of more than $5 million.

Looking at aggregate total values, California tops the list with New York as a close second. This is a change from 2020, when New York was slightly ahead of California. Commercial buildings in California had a total value of $1.9 trillion at the end of 2021, or 15% of the value of all U.S. commercial buildings.

New York is not far behind at $1.7 trillion. Back in 2017 it was California in the lead, as it is now.

Rounding out the top three states with more than $1 trillion is Texas, with close to $1.1 trillion in aggregate total value for commercial properties.

We get estimated building market values in two ways.

First, some of the nation’s tax assessors report what they believe to be a building’s market value. You can argue with the accuracy of tax assessor numbers, but in the aggregate, they aren’t too bad.

Second, some tax assessors report only an “assessed” value for a property, which is often below market value and set merely for taxation millage purposes. When we get a tax assessor “assessed” value and no market value, we compare the assessed values to recent sale prices in the same vicinity and adjust the assessed values up to estimated market value.

Property Values By State provides further details.


Risk Scores

If our credit risk scores are as good as we claim, then we must have some idea about the number of U.S. commercial buildings in dire jeopardy, right?

Some will have commercial mortgages in grave danger of default.

Some will be risky for new buyers based merely on location and building characteristics.

And some are likely to be nightmares for property-casualty insurers, because financial risk correlates with claims.

So, how many? Risk Score Distribution provides details.

As of December, 2021, we counted 12,189 properties that had commercial mortgages with default risk scores above 500 (meaning five times or greater than the norm likelihood to default on the loans).

We also counted 10,919 properties with extremely high inherent risk for new buyers, and 19,492 with very high claims risk for insurers based on financial stress.

Of course, most commercial properties are relatively risk-free, otherwise the whole national economy would be in deep trouble.

As the data show, a very large majority of properties have risk scores below 100 in every category. The 100 score is our national norm level of risk. Millions have risk scores below 25 – and thank goodness they do.

All three of our risk scores are intended to rank-order properties by risk.

Because we get a monthly updated flow of mortgage notices-of-default, meaning very high delinquency, we are able to test and refine our scoring models at any time.