Commercial Real Estate is the property used exclusively for business or to provide an office rather than a residential space. It comprises a variety of property types such as office buildings, retail properties, industrial properties, multifamily housing, hotels, and special-purpose properties like healthcare facilities and educational institutions.
Types of Commercial Real Estate
Office spaces come under two categories – urban and suburban. Urban office spaces are the buildings found in cities. Suburban office spaces are usually smaller in height and sometimes found in an area with several buildings full of offices. Office buildings are further classified in three classes:
- Class A – High-quality, modern buildings, with above average rent, excellent amenities and prime locations.
- Class B – Well maintained older buildings with adequate systems. But these buildings cannot compete with Class B in the same rent.
- Class C – Older buildings competing for tenants with rent below average for the area.
These properties comprise the shops, malls or other commercial complexes that we see everyday. They can be multi-tenant, or single-use standalone buildings.
Industrial Buildings allow industrial operations for a variety of tenants and are mostly located in the outer side of urban areas. These can be further divided into following:
- Manufacturing Buildings – Buildings equipped for heavy manufacturing and production processes.
- Warehouses – These are large buildings used for storage, light manufacturing and distributing.
- Flex Industrial – These buildings contain both industrial and office spaces.
Residential buildings or units owned by a single entity. These include all types of residential real estate for example apartments, condominiums etc. These buildings are classified into following types:
- High-rise: A building with 9 or more floors with at least one elevator.
- Mid-rise: A multistory building with an elevator, in an urban area.
- Garden Style – An apartment with not more than three-story built in a garden-like setting in a suburban or urban area. These buildings may or may not have an elevator.
- Walk-up: A four to six floors building without an elevator.
Properties designed with temporary accommodations, meals and other services for travellers and tourists. These may be boutique(independent) or flagged (a part of a major hotel chain).
Special Purpose Properties
These may be owned by commercial real estate investors but don’t come under any of the above categories. For example, hospitals, parks, churches, colleges, universities, temples etc. These all are special purpose properties.
Each type of commercial real estate comes with its own set of challenges and opportunities, and investors choose properties based on factors such as location, market demand, and potential return on investment.
Pros and Cons of Commercial Real Estate Investment
To decide whether to invest in commercial real estate or not, one must go through its pros and cons:
- Provides a good return on investment
- Offers longer lease terms which results in greater cash flow stability
- Diversified portfolio
- Lengthy buying and selling process
- May require more money beforehand
- Direct investing requires an understanding of real estate laws and regulations
The diverse landscape of commercial real estate offers a myriad of investment opportunities catering to various industries and needs. Special purpose properties serve essential roles in healthcare, education, and recreation, while mixed-use developments blend the lines between commercial and residential spaces. The market’s dynamism lies in its ability to adapt, offering investors a chance to explore and innovate within these diverse sectors, shaping the future of urban landscapes and economic progress.