Commercial real estate (CRE) is a property exclusively used for business purposes or to provide a workspace instead of a living space. More often, these properties are leased to tenants to conduct business. This includes retailers of all kinds such as convenience stores, restaurants, and hotels.
These properties have the potential to generate profit through gaining from invested capital or income from rental costs. It’s a potent source of revenue and capital appreciation for investors. They can be broken down into different categories so investors can distinguish each property’s intended use.
The first step to a successful commercial real estate endeavor is learning all about the types of buildings that it comprises. Here are the different types of commercial real estate.
Multifamily
Multifamily properties cover all types of real estate outside of single-family properties. It is the go-between of residential and commercial real estate. Primarily, these properties can serve as a residency but the general purpose is still for investment, regardless if it is occupied by the owner or not.
This asset class includes duplexes all the way through to multi-hundred unit apartment buildings.
Duplex – this is a two-unit rental property virtually found on every market. Units like this are more for new investors that prefer to make a profit on their own. Buildings like this usually go up to three to four units. (triplex = 3, quadruplex = 4)
Garden apartments – garden apartments are typically 3 to 4 stories with 50-400 units with no elevators and surface parking. It’s essentially a collection of low-rise apartment buildings on one piece of property.
Mid-rise apartments – usually 5 to 12 stories with 30 to 110 units, has an elevator service, and is commonly built-in urban infill locations.
High-rise apartments – these apartments are usually found in larger markets with over 100 units and are managed by a professional. They have less explicit number of stories but a typical 10-2 story building can be considered as a high-rise.
Office
Office CREs are ranked into three tiers: Class A, Class B, and Class C. These buildings can both be found in urban and suburban areas.
Class A – these are considered the best in terms of location and construction.
Class B – these are properties that have high-quality construction but in a less desirable location.
Class C – these are properties that are fairly deteriorated and are in an unfavorable location.
Industrial
Industrial buildings house industrial operations for a variety of tenants and are mostly located outside urban areas along major routes of transportation. These properties are categorized into four types:
Light assembly – structures for light assembly can be easily reconfigured, and is commonly used for office space, product assembly, and storage.
Heavy manufacturing – these structures are what business people usually look for when they choose Kansas City available warehouse space. These are heavily customized with machinery and usually require renovation to repurpose for another tenant.
Flex warehouse – flex spaces can be easily converted and normally include a mix between office and industrial space.
Bulk warehouse – these are large properties ranging from 50,000 to 1,000,000 square feet, and are often used for regional product distribution that requires easy access for trucks entering and exiting highway systems.
Retail
These properties can either be multi-tenanted or single-use standalone buildings and are more commonly invested in by retailers. Retail real estate can be identified as shopping centers, community retail centers, a power center, or a regional mall. Each is occupied by anchor tenants that serve to draw customers into the property.
Hotels
Hotels provide accommodation, meals , and other services for tourists and travelers. They are grouped into 3 categories:
Full service hotels – these hotels are usually located in central business districts which typically includes a room service and an on-site restaurant
Limited service hotels – hotels under this category are usually boutique properties and are smaller compared to full service hotels.
Extended stay hotels – these hotels offer limited services but are fully-equipped to accommodate guests for an extended period of time.
Special purpose
There are plenty of other real estate that are considered commercial and are constructed and owned by investors. These properties are classified under the miscellaneous special purpose type. These include zoos, amusement parks, bowling alleys, parking lots, stadiums and much more.
Summary
There are different types of CREs and they are grouped by size and intended use. Some cater to different sectors, while some can be repurposed to be utilized for different reasons. Depending on your preference and expertise, you will be able to determine which CRE career path you would want to take.
Contributed by: Angelo Castelda
