8 Commercial Real Estate Categories Explained

Commercial real estate is any type of property used for commercial or non-residential purposes. Before you jump right in and buy a piece of commercial real estate, it's important to understand what CRE actually is.

Commercial real estate is one of the largest investment classes in the world. Most investors are unaware that commercial real estate investments are even possible and some do not even think of it as an investment opportunity at all. Once you learn what it is and why commercial real estate is a great asset, it might give you new insight into your finances as well!

Commercial real estate: What Is It?

A piece of property known as commercial real estate (or CRE) is one that is utilized solely for professional or business purposes or to provide cash flow for the owner or lessee. Office space, industrial structures, multi-family rental homes with more than five units, and retail spaces are all examples of commercial real estate.

Zoning regulations also apply to commercial real estate, requiring specific commercial property categories, like industrial buildings, to be located only inside those zones. The majority of commercial real estate properties are owned by investors who lease them to pertinent companies for lengthier periods of time than residential leases.

Commercial real estate includes structures like shopping malls, factories, office buildings, and apartment buildings that are utilized to generate income.

What Sets Residential Property Apart from Commercial Property?

1. The purpose of commercial real estate construction is to produce income for the investor or lessee. The primary function of residential property, such as a condo, single-family home, or townhouse, is for a person or family to live in. However, owners of single-family residences can rent out their property to generate money.

2. Occupancy: Multi-family properties are designated as commercial buildings and include large apartment complexes and high-rise residential structures with more than five units. Residential real estate includes single-family homes and any residential buildings with one to four rental units as a part of the property.

3. Lease length: The majority of residential leases are annual leases, but commercial real estate leases are often for five to 10 years or more.

4. Rates: The price of commercial real estate is often expressed as a valuation based on the property's square footage. The annual amount of the monthly rent is commonly used to determine the price of residential real estate.

The Eight Categories of Commercial Property

There are eight different classifications used for commercial real estate.

1. All office buildings featuring workplaces that may be rented out to various businesses are referred to as "office spaces."

2. Industrial real estate includes any property utilized for industrial purposes, such as bulk warehouses, large manufacturing facilities, light assembly lines, and flex spaces that can combine office and industrial space.

3. Apartment buildings with more than five units are known as multifamily complexes, and they are classified as commercial real estate since they bring in rental income for the building's owner or property management firm.

4. Any building used for retail purposes is considered a retail property. Anything from a single business to a strip mall and a shopping center can fit this description. Larger sites, such malls, will frequently include an anchor tenant, which is a bigger department store that will attract other stores to the location.

5. Hotels: There are three distinct sorts of hotels. Large, multi-room hotels with full-service amenities typically have one or more bars and restaurants. Smaller, more basic hotels with limited services may not provide amenities like turndowns, 24-hour front desk assistance, or concierge services. Larger rooms in extended-stay hotels are available, more akin to serviced apartments.

6. Properties with a mixed use: These can be any combination of the categories mentioned above. Apartment complexes with stores on the ground floor are typical examples of mixed-use developments.

7. Farmland, agricultural real estate, unoccupied land, and brownfield land—land that has previously been utilized for industrial or commercial purposes but is now accessible for reuse—all fall under the category of property.

8. Commercial real estate used for special purposes includes zoos, theaters, amusement parks, and parking lots. Any kind of commercial real estate that doesn't fall under one of the aforementioned subcategories is referred to as special-purpose.

Conclusion

The commercial real estate market is mysterious and sometimes scary to investors because of the complexities, but it is a solid investment. If you are looking for an investment that can be relied on regardless of economic circumstances, keep exploring the world of commercial real estate investing. There is no need for fear as long as you have a thorough understanding of what exactly you are getting into.

What do you think? Are you going to try buying commercial property? What makes the most sense to you, and why? Leave your thoughts in the comment section below!