Real estate that has the potential to make money through capital gains or rental revenue is the simplest way to define Commercial Real Estate.
Why do you need to know more about Commercial Real Estate?
Your investment portfolio can benefit from some diversification through commercial real estate. All investments involve risk, but compared to other assets, some types of commercial real estate can minimize risk.
Tenants of commercial real estate frequently sign leases that are three to ten years long which give landlords some degree of reliability. Additionally, certain commercial real estate investments can weather economic downturns when their tenants include hospitals, government agencies, and other institutions that will remain in operation when the general economy is shaky. Additionally, the consistent cash flow from monthly rent payments offers security.
Types of Commercial Real Estate
Identifying the most basic forms of commercial assets is essential to understanding the business sector. Let’s learn more about commercial real estate types.
1. Multi-family Real Estate
Housing with many units, ideally contained within a single physical structure, is known as multi-family real estate. They can be found where residential and commercial real estate meets.
They are further categorized into the following types:
Duplex, Triplex and Quadplex:
Accordingly, rental residences with two, three, or four units are referred to as duplexes, triplexes, and quadplexes. There are buildings of this type in almost every market. Individual investors frequently live in one unit while renting out another.
Low-rise rental apartment complexes with common outdoor space, yards, or gardens are known as garden apartments. They can be found anywhere. However, they are often in the suburbs.
Mid-Rise & High Rise Apartments:
High-rise apartments are those with 12 stories or more, whereas mid-rise apartment complexes contain five to twelve levels. They typically feature elevators in crowded urban regions like New York City, Los Angeles, or Chicago because of their height.
Student housing is real estate designed with students in mind and located close to colleges and city areas. Many have sizable communal spaces.
Senior Homes/Assisted Living:
Buildings that are designed specifically for elders. They are typically in areas with a high elder population.
2. Retail Space
Retail property has space rented to companies who conduct direct sales to customers from a storefront. Assets appeal to investors because of their high visibility and propensity for long-term leases from tenants. However, their traffic volumes are also tightly correlated with macroeconomic variables and levels of consumer discretionary income.
Retail Spaces are further divided into the following types:
Shopping malls are a collection of shops gathered together, frequently in one or more connected structures, to offer a consolidated shopping experience. Some of them might have prominent tenants serving as anchor tenants, drawing customers in and directing them to other stores.
Community Retail Centers:
These complexes typically range from 150,000 to 300,000 square feet and feature multiple smaller companies and more than one anchor tenant.
General Purpose Shopping Centers & Supermarkets:
Buying everyday necessities, including food, clothing, and electronics can be done at a general purpose shopping center or supermarket.
3. Office Space
Office buildings often come in a number of forms and can be either mid-rise or high-rise structures. Since management does not want to move their personnel every few months, office leases are frequently long-term. space can be expensive depending on the infrastructure and location, but they offer top-notch facility management systems.
Office Spaces can be classified into the following types:
Office Building Classes:
There are four types of office buildings (as well as other types of commercial real estate) with letter grades ranging from A to D. Class A spaces are the most up-to-date, modern, environmentally attuned and conveniently situated. They are also the most expensive to rent. Class D properties are in deteriorating shape and can require a complete renovation or demolition. In between are classes B and C.
Central Business Districts:
Office buildings are grouped in a city’s central business district. The strong demand for space and the best use of space to build up usually lead to skyscraper clusters in larger cities.
Large corporations frequently construct expansive suburban office complexes with one or more buildings and features like a garden or courtyard. This may be a far more economical solution to accommodate numerous employees for a large business.
Due to their long-term returns, leases, and low overhead costs, industrial buildings make beneficial investments. In comparison to different types of commercial real estate, industrial buildings are frequently situated near interstate highways for easier shipment and delivery. Industrial warehouses are in high demand, particularly as the eCommerce boom continues and order fulfillment necessitates new delivery infrastructure.
Industrial buildings come in a few different varieties, each with a unique size, design, format, and other characteristics.
Light assembly properties are best utilized as a final product assembly line or storage facility. They are usually smaller in size.
Flex spaces can be defined as a combined version of office and warehouse space designed to be adaptable/flexible.
Buildings that have undergone considerable renovations to accommodate the manufacturer’s specialized equipment and procedure can make it difficult for other tenants to occupy them.
Big firms employ bulk warehouses, which range in size from 50,000 to 1,000,000 SF and more, as a centralized distribution hub for goods. These large storage facilities are frequently divided up by region by manufacturers, with optimal sites chosen depending on supply chains.
5. Hotels & Hospitality
The hotels and hospitality category includes structures that provide short- and long-term lodging to visitors, whether for pleasure or business. Like many other asset classes, hotel real estate’s return varies according to the ups and downs of the economy, notably in the tourism and entertainment sectors.
The following are a few of the most typical hotel types:
A hotel that offers a full range of services to visitors is said to be full service. These frequently consist of on-site dining options, exercise facilities, spa services, room service, etc.
Limited Service Hotels:
A limited-service hotel offers just a few services, as the name would imply. For instance, they might have a grab-and-go market rather than a sit-down restaurant. They might also offer a smaller workout room with a limited selection of equipment instead of the whole fitness facility.
The majority of hotel stays last between three and seven nights, while some tourists require lengthier stays. Extended stay hotels are designed to make people feel more at home.
Resorts are full-service establishments that typically offer a recreational component in addition to accommodations, like a beach or amusement park.
6. Mixed Use
Not all structures neatly fall under the categories of commercial real estate listed above. Some properties are classified as mixed-use assets because they belong to various real estate asset classifications. Many downtown high-rises are categorized as mixed-use because they have apartments above and first-floor shops below. Mixed-use properties consist of real estate asset classes like retail, office, and residential.
7. Special Purpose
A special purpose commercial building is the one that is constructed for a very specific purpose and may not fall under any other category mentioned above.