What are NAICS codes and why are they important in commercial real estate? The North American Industry Classification System (NAICS) is the standard used by Federal statistical agencies in classifying business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy (census.gov).
Fine, good definition, but why are they important? The main reason why they are important to commercial real estate is for determining obsorption rates of office vacancy, but they can also be used to determine highest and best use.
Here’s an example; let’s say and investor owns a vacant building that used to hold a Blockbuster Video store and he wants to lease or sell it. Typically, an agent might look at his building, look at the zoning codes and list the property based on what could go there. As you probably know, video/DVD rental stores are declining due to the advent of Netflix, Video on Demand and YouTube. But how would an agent determine what would be the most likely tenant for the space? One way would be to research the Bureau of Labor Statistics website to determine which industries are flourishing in the area that meet the zoning requirements for the space and cross reference them with the latest census report. Through the use of understanding NAICS codes, agents can be more prepared to list space for prinicipals.