Wondering what is a commercial real estate? Thinking of investing in a commercial real estate? Before you can invest in a commercial real estate, you should know about its sectors. These properties have the potential to produce profit with the help of rental income or capital gain.
There are several types of commercial real estate, making it a challenging task to know which property you should invest in. This is why we have highlighted the different types in this post.
In simple words, a commercial real estate is a property that is larger than a single-family home. Though the types of commercial real estate vary from country to country, here are some common types.
The first and most common type of commercial real estate is office buildings. The buildings are, usually, divided into two categories; suburban and urban. You can find listings of office buildings on popular commercial real estate platforms such as CityFeet and UpFlip.
Urban or Central Business District (CBD)
Urban offices are located in the buildings in the center of the city. This type of building is situated in the major cities like high-rise property and skyscrapers. Such buildings might have a few million square feet in size.
Suburban offices are smaller in size and are grouped in office parks. This type of office building includes structures ranging from 80,000 to 400,000 square feet; mostly located outside the city center.
Furthermore, the office buildings can be single-tenanted, or multi-tenanted, or build to suit. They can even be classified into three categories: Class A, Class B, and Class C. The buildings are ranked according to the neighborhood and its location.
- Class A- This type of building is considered as the most prestigious buildings. It the best in terms of location and construction. Such buildings have a high-quality finish, excellent systems, great market presence, and easy accessibility. The rents of such offices are above the average.
- Class B- The location of this type of building is less desirable with quality construction. The rent for offices is in the average range. The systems are adequate, and services are good.
- Class C- This type of building is located inan unfavorable location and have average construction. The rent for such spaces is below the average for that area.
Industrial buildings are located outside urban areas. Such buildings are used for industrial operations for a wide range of tenants. Mostly, the buildings are located near transportation routes. There are some low-rise buildings that can be categorized as industrial parks. The industrial properties can be divided into four main categories.
- Light Assembly- might be used for storage or product assembly.
- Heavy Manufacturing- such buildings are customized and have machinery for manufacturers to produce products and services.
- Flex Industrial- this type of space is a hybrid, consisting of both, office, and industrial space.
- Research and Development- these facilities are specialized types of industrial buildings.
- Bulk Warehouse- it is a large property; mostly used as distribution centers.
Another most common type of commercial building is Retail. This type of building comprises of restaurants or retailers. The buildings can be single-tenanted, multi-tenanted, or even standalone. The retail sector is complex as it can be used for various purposes. You can use it as a shopping center. It can be a strip center, a community center, a shopping mall, or a power center. The type of shopping center depends on the concept, size, types, and number of the tenants.
The single-tenanted buildings consist of box centers (Best Buy, Walmart, or Target) or pad sites (buildings with a bank, drug store, restaurant, or a shopping center).
This type of commercial facility is a mix of commercial and residential real estate. Multifamily buildings include residential properties except for single-family houses. It mostly includes co-ops, apartments, townhomes, and condos. These buildings can also be classified into Class A, Class B, and Class C.
On the other hand, apartment rental buildings can be divided into six categories.
- High-rise-this type of building has nine or more than nine floors with one elevator.
- Mid-rise-it is located in an urban area. A multistory building with a lift.
- Walk-up-this building doesn’t have any lift and has four to six floors.
- Garden-style-the building can be one to three-story apartments with a garden-like setting. It can be situated in the urban, rural, or suburban areas. The building might or might not have lifts.
- Special-purpose housing-a multifamily real estate that is specifically made for a population segment. Such as seniors housing, student housing, and subsidized housing.
- Manufactured housing community-the owner leases the site to owners of manufactured homes.
The most common type of commercial property is a hotel. Hotels are great investment. And there are some great hotel listings available online to find your next business opportunity. This sector comprises of establishment offering meals, accommodations, and other facilities for tourists and travelers. The hotel can be flagged or independent. A flagged hotel might be a part of a hotel chain like Sheraton or Marriott. The hotel buildings can be classified into different categories.
- Casino- the building has gaming components like slot machines or video poker.
- Full-service- this includes an on-site restaurant and room service.
- Limited-service- it might not have room service, a concierge, or an on-site restaurant.
- Boutique- this type of hotel will be situated in a resort or urban area with full-service facilities. It has a few rooms and is not part of any national chain.
- Resort- located in the resort location with a full-service hotel. It usually has water park, golf course, or amusement facility.
- Extended-stay- it offers a limited-service with an equipped kitchen in large and guest rooms.
6. Special Purpose
The special-purpose real estate is owned by commercial investors. These are not included in any of the above-mentioned types. For instance, churches, bowling alleys, amusement parks, and self-storage.
We hope you have a better understanding of different sectors of commercial real estate. It is advised to look for a commercial real estate from a well-reputed and trustworthy site