Different Types of Commercial Real Estate Explained
Updated: Jun 17
Commercial property refers to any property utilized for a specific business-related purpose or acts as a workspace for businesses. Often commercial properties are leased (or rented out) to business owners for their income-generating activities. There are different types of commercial buildings:
What Types of Commercial Properties Should You Invest In?
There are specific categories of commercial buildings designated by the local authority. Each type is designed keeping in mind the unique function it would serve. So you should analyze your requirements and then invest in that type of commercial property which fulfils those requirements.
Different Types of Commercial Real Estate:
Office Commercial Real Estate
Office commercial real estate, based on its location and surrounding market, falls under three categories:
Class A - property that’s considered to be of prime quality regarding location and construction.
Class B – a commercial building with high-quality construction but has a less desirable location.
Class C – commercial properties that are in a dilapidated condition and located in an unfavourable location.
Also, office commercial buildings can be divided into subcategories based on location. For instance, if the property sits in a large metropolitan area of a major city, then it falls under the group known as the central business district. However, if an office’s location happens to be in the suburbs, even if it is a mid-rise building, then, of course, it is classified as a suburban office building.
Retail Commercial Real Estate
Retail commercial properties fall under this category because an investor owns a building and collects rent from the business owners who operate there. The property owners usually quote their rental rates in dollars per square foot per year. Based on the location and size of this type of commercial building, a tenant can expect a lease that spans anywhere from 5 to 10 years.
While industrial properties vary in size, based on their purposes, they are divided into the following categories.
Heavy Manufacturing - Properties highly customized with machinery, usually in need of substantial renovation before re-purposing.
Light Assembly – Structures that are easily reconfigured and mostly used for office space, storage, or product assembly.
Flex-Warehouse - Property that is easily convertible and offers a mix of both office and industrial space.
Bulk Warehouse - Large properties used for product distribution which means the building requires easy access for trucks and exiting highway systems.
Oftentimes, you might find any of these commercial buildings in the “industrial park” of a community as opposed to a downtown location. Some are also located just a few miles outside of the city limit, depending on the need for space.
While multifamily properties appear to be a combination of commercial and residential premises, in most communities, they are zoned as commercial if they have 5 or more units. However, this specific category can involve everything from a duplex up to a hundred-unit apartment building, although the duplex and even a triplex would be zoned as residential buildings.
On the other hand, the commercial, multi-family buildings include:
High-rise apartments with 10 or more floors
Mid-rise apartments with 5 to 9 floors
Garden apartments with 1 to 4 levels; no elevator
Hotels / Hospitality Properties
The more temporary accommodations, or hotels or resorts as they are known, offer full or limited services along with restaurants, shops, and/or conference rooms. Here are some of the more general categories:
Full-Service Hotels are usually located in central city areas; though some can be situated on the outskirts and include big-name chain hotels.
Limited-Service Hotels are smaller, like-boutique properties, that don't provide amenities like room service, on-site dining areas, or convention space.
Extended Stay Hotels, with their larger rooms and kitchenettes, are aimed at people staying a week or more.
When investing in hospitality and hotel properties, you might keep in mind the size of the staff that you’ll need to keep operations running smoothly.
Special purpose property bears this miscellaneous, commercial property classification. These commercial properties have limited, yet distinct, purposes. Often, its utility differs from its original use. Examples of such properties include bowling alleys, amusement parks, parking lots, theatres, zoos, and stadiums. Also, in the areas of industry, special purpose properties also include refineries, hazardous waste storage facilities, and specialized manufacturing facilities.
Land property is literally what the name says—land. Nonetheless, the land property does serve different business-related purposes such as the following categories.
Greenfield /Agricultural land refers to any undeveloped land like pasture, orchards, ranches, and farms with livestock and/or poultry.
Infill land is a city land that sits empty but is developed. This type is strictly for real estate purposes and development in urban areas.
Brownfield Land refers to parcels that were previously used for commercial or industrial use but are being repurposed. This type of property generally is not populated due to environmental issues.
Mixed-use properties basically combine any of the previously mentioned commercial properties. The most common examples blend retail and restaurant properties with residences or offices on another floor or in another section of the commercial building.
So, after gaining an overview of types of commercial properties, you might have a better idea of which variety you would like to invest in. While the process seems daunting, you can contact a commercial real estate agent like Joe Rosati who is knowledgeable about the availability of properties, their advantages, and disadvantages, and of course, the transaction process.