The term commercial real estate is used to refer to all the buildings or pieces of land that are developed for income generation. When many people hear about commercial property, they think about shopping centers and office buildings. However, the commercial real estate industry is broader than that. Knowledge of commercial real estate basics is crucial to succeeding in the industry.
There are different commercial real estate property types. Each type has other subdivisions that investors who are willing to invest in real estate can venture into. Real estate is a very lucrative industry, and aspiring investors need to identify the different subcategories so that they can make a well-informed decision in the trade. Without this knowledge, it would be challenging to choose the commercial property entity that suits a particular location.
The following are the major commercial real estate property types:
1. Office Buildings
Offices are broadly classified into three classes. These are class A, class B, and class C. These classes are relative depending on where the building is located. Class A offices are usually the best types based on their location and the facilities that they possess. They are situated in the most productive places like in big cities. They are constructed using the most modern technologies and have the best facilities. Class B offices are also attractive, and they contain almost all facilities that are found in Class A. They are however located in places that are not so business friendly. Class C types are ranked as the lowest kind of offices. They are situated in remote areas and also lack significant facilities that are present in class B offices.
Offices in the commercial business district (CBD) of any town fetch the highest revenue. This is because these buildings are situated where office space is costly. Therefore, an investor who has interest in constructing an office building should consider building it in the CBD. However, one has to have an enormous capital outlay since the value of land in the CBD is very high. CBD offices are found in major metropolitans such as New York, Washington D.C., and Chicago.
2. Industrial Buildings
These commercial real estate property types are mostly located on the outskirts of the city. They are also prevalent near roads to allow easy transport of raw materials and products. Industrial buildings are subdivided into four major categories. These are:
- Heavy Manufacturing – This type is used by companies that engage in the production of industrial goods. They are constructed using different designs depending on the requirements of the tenant. Most of them are fitted with machinery and equipment that are relevant to the industry in question. They require tremendous innovation when a new tenant intends to replace another one especially if the two produce different goods.
- Light Assembly – These buildings are not as complex as heavy manufacturing ones regarding construction design and the equipment. They are used for assembling of goods that are in the last phase of production.
- Flex Warehouse – This building is multipurpose. It can be used for light assembly purposes as well as office work. It can also be easily partitioned to serve both purposes simultaneously.
- Bulk Warehouse – Most of the bulk warehouses occupy a vast space. Most they are used primarily for storage of goods. Most of these kinds of buildings are near roads to enable easy distribution of the goods to where they are required.
3. Retail Buildings
Retail buildings are used to host businesses that involve buying and selling of material goods and services. Types of retail buildings include:
- Strip Centers – A strip center is a retail building where many small businesses of different types located. These include dry cleaners, nail salons, and Chinese restaurants. A strip center can also have an anchor tenant. An anchor tenant is a big retail shop with a high reputation that uses its popularity to draw other tenants. Examples of anchor tenants include Publix, Home Spot, and Wal-Mart.
- Community Retail Center – Most community retail centers occupy a space of 150,000 to 350,000 square feet. Most of these buildings have multiple anchor tenants.
- Regional Malls – Malls are the largest retail building. They occupy a space of between 400,000 to 2,000,000 square feet. There are many anchor businesses in malls than in any other kind of buildings.
- Out Parcel – These are pieces of undeveloped land usually near retail stores. They are meant to be used for the construction of banks and or fast food joints.
A multifamily building is one that is built to serve an extensive family. Multifamily commercial real estate buildings include apartments, condominiums, and townhomes. Multifamily buildings are classified into three classes. These are class A, class B and class C like just like offices. Commercial apartments are subdivided into four main classes. They include:
- High-rise apartments – These contain at least nine floors. Most of the high-rise apartments have at least a single elevator.
- Mid-rise apartments – They have 5 to 9 stories, and most have an elevator. A midrise apartment can have 30 to 110 housing units.
- Garden Apartments – This type of buildings became prevalent in the 1970s. At this time, most people were migrating from the urban areas to suburbs. Garden apartments are also found in rural areas. They have three stories at most. Garden apartments in most cases don’t have an elevator.
- Walk-up apartments – They have four to six stories, and most don’t have an elevator.
Hotels are buildings that are constructed to provide food, accommodation, and other services primarily to tourists or people who are traveling. Some hotels operate as independent entities while others are flagged. Flagged hotels operate as a part of a major hotel chain such as Sheraton. They are subdivided into six major categories.
- Limited service – As the name suggests, these hotels do not provide all the services. Most limited service hotels lack room service and an onsite restaurant.
- Full service – These have all the services and facilities that lack in a limited service hotel. Most posses an onsite restaurant and also provide room service.
- Boutique – Are mostly found in urban areas. Boutiques are full-service hotels that are not part of a major hotel chain. Independent individuals own them.
- Casino – Casinos have all the major gambling games on offer.
- Extended stay – These hotels contain almost all the facilities that can be found in a rural home. This means that guests who intend to stay at a place for an extended period can live as if they are operating from their homes in extended stay hotels.
- Resorts – A resort covers an extensive piece of land. A resort offers full services and also contains facilities such as a golf course or an amusement park. Different kinds of commercial real estate resorts will have a variation of facilities. Some are more equipped and luxurious than others.
As said earlier, the commercial real estate industry is not just limited to buildings. A piece land is also a type of commercial property. A piece of land is one of the essential commercial real estate basics since all property is built on solid ground. Different kinds of real estate property under this category include:
- Greenfield land – This kind of land is found in a rural setting or a town suburb that is not highly populated. It is mainly an undeveloped parcel that has grazing pastures or a farm.
- Infill land – These are land parcels in the midst of big towns that are developed but vacant.
- Brownfield land – This is a piece of land where an industry was previously built but has been vacated. They are usually ugly in appearance since most industries release contaminants into the surrounding.
In a nutshell, different kinds of property are considered as commercial properties. Therefore, an aspiring real estate investor should first understand the commercial real estate basics to enable him/her to choose the right form of investment. The different kinds of real estate have different locations where they would fetch the highest rent. Also, different kinds of property require different amounts of capital investment. Investors should, therefore, consider engaging a knowledgeable property adviser who is well versed on the different kinds of property. The adviser will help the investor to choose the most appropriate property from the vast pool of different kinds of real estate.