What Is Commercial Real Estate?
Commercial Real Estate refers to any property to produce income and it could be anything. This could be anything like a suburban office building, a sleek high-rise downtown of glass, an apartment building next door, and more. When looking from the point of investment, commercial real estate includes any type of property which includes land that brings income. Speaking from the business point of view, commercial real estate is anything like retail, industry, hospitality, medical, or any commercial space leased for the use of a business. Commercial properties can be classified into major 6 categories like industrial, retail, office, land, multi-family, and miscellaneous properties.
Single-tenant buildings, skyscrapers, small professional building’s and anything that comes in between comes under commercial real estate office properties. There are three categories of buildings and these are Class A, B, and C.
1. Class A Buildings
Class A Buildings are the new buildings made with state-of-art infrastructure. These are usually located in prime locations, professionally managed, and have good access.
2. Class B Buildings
Class B Buildings are the major target of investors because no matter they are older, they offer the highest Return on Investment through improvements and renovations. These buildings are well-managed and well-maintained but the infrastructure might require capital investment.
3. Class C
Class C buildings are poorly located and older. Plus they also need updates and extensive renovation to out-of-date infrastructure. When it comes to rental rates, these are lower and often vacant longer as compared to higher class buildings.
In commercial real estate, office space is not limited to metro cities. These are mid-sized structures ranging from 80,000 to 400,000 sq feet and located in the suburbs and outside the city centre.
Restaurant / Retail Properties
Restaurants or retail sites can be freestanding for instance a restaurant building or bank. You can find them either on multi-family structures or lower floors of office buildings in the urban areas. Retail offerings are located in neighbourhood centres or in strip malls.
Strip malls near neighbourhood retail sites range from five thousand sq ft to 100,000 sq. feet. They are the blend of small retail units and suburban landscapes. On the other hand, community retail centres are between 150,000 and 350,000 sq. feet of commercial space and contain several anchors like office supply stores, fitness centres, drug stores, dry cleaners, and other small retail units.
There are some industrial spaces that lend more to the investment opportunity. Even heavy manufacturing sites are specialized with machinery and can’t be transformed for another use. Such sites house a single tenant which makes them a worthless investment bet. Bulk warehouse space is specialized and does not transform easily. On the other hand, light assembly industrial space can be easily converted to any commercial use or to office space.
An apartment fourplex or larger than that is commercial real estate for any investor. High-rise condominium units, sprawling apartment complexes and smaller multi-family units are all CRE investments. However, leases on multi-family structures are shorter term compared to retail units and offices. The most common types of multi-family structures that are 3-4 story structures without any elevators are garden apartments that were developed in the ’60s and ’70s. Mid Rise apartment complexes fall between five to nine stories and these come with an elevator. High-rise apartment complexes have more than a hundred units and these are professionally managed.
Investors as a rule favour land that is in the way of future development. When people invest in commercial real estate, they get higher income potential. As the size of the property and the tenants of a commercial property can hold, the yearly return is higher compared to other investments. Moreover, more tenants mean less risk. In a building with multiple occupancies, there is less risk of income loss. Commercial real estate also provides security advantages. It means unlike bonds and stocks, commercial real estate assures value of booth improvements and the land including landscaping and infrastructure. Whereas investments like stocks never allow more than selling and buying, commercial real estate owners can easily invest in properties improvements without any hassle. Moreover, they can raise rents, modernize the property and redesign interiors and exteriors as well. In the nutshell, investing in commercial real estate has many benefits if executed wisely.