When we talk about real estate, most people typically picture themselves purchasing their dream homes. You rarely will find people thinking about commercial real estate.
So, what is commercial real estate (CRE)? Commercial real estate refers to properties owned by business owners or investors to generate income. The investor can lease out part of the building or offer office spaces to other businesses. In essence, the property should generate income for both the property owner and the tenant.
To get a clear idea of the type of CRE we’re talking about, you can search Arizona storefront properties for lease and take a look at some of the commercial properties on offer.
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Types Of Commercial Properties
Since businesses require property space for various reasons, commercial properties are categorized into four main categories according to business functions. Below are their specifics.
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Office Space Commercial Properties
Office buildings provide businesses with workspaces where the business can conduct its operations. These buildings offer reception areas, cubicles, conference rooms, kitchenettes, etc.
Most business owners prefer long-term leases to lease an office building, lasting between 5 to 10 years. Most business owners prefer long-term leases to avoid moving their business operations around regularly.
Office buildings are usually categorized into different classes, which serve as guidelines that highlight the condition of each building. These classes include:
- Class A: Represents office buildings with the highest quality finishing. These buildings are usually newer, have the quality infrastructure, and are based in metropolitan areas.
- Class B: These buildings are slightly older and cheaper than Class A buildings. However, they offer great value to tenants because of their low rent and well-maintained infrastructure.
- Class C: These are buildings older than 20 years located in undesirable areas. The quality of the buildings is poor, and they require constant maintenance
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Multi-Family Commercial Properties
Multi-family buildings are residential buildings with multiple rental units. For a residential building to qualify as a multi-family building, it must have more than five residential units.
They are considered commercial properties because they earn an income for the building owners.
Multi-family commercial properties are categorized in several classifications according to the size of the building.
- Garden: Garden-style buildings have fewer than 4 floors.
- Mid-rise: Mid-rise buildings have 5 to 7 floors.
- High–rise: High-rise buildings have 8 or more floors.
Lease agreements in multi-family commercial properties are generally short-term. That’s because tenants keep relocating a lot.
While the constant turnover of tenants can be a bother, it rarely affects the profit margin of large apartment buildings with a few empty units. And that’s why multi-family commercial properties are considered safer investment options by most real estate investors.
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Retail Commercial Properties
Retail commercial properties are buildings that have been commercialized for retail purposes. They can be single-tenant buildings like your local Walmart, Target, or Best Buy. Or they can be multi-tenant buildings where space is let out to several tenants.
Some of the most common retail commercial properties include storefronts, banking halls, strip malls, entertainment centers, or diners.
The rent for retail space is traditionally higher than office space rent. That’s because businesses hiring or buying rental space are interested in foot traffic. Hence, a higher rate for each square foot.
It’s also common for multi-tenant retail buildings to house one or several ‘anchor tenants.’ Anchor tenants are usually big brands responsible for attracting the largest foot traffic to the building.
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Industrial Commercial Properties
Industrial commercial properties are generally used to produce, store, and distribute manufactured goods. Examples of industrial properties include R&D sites, warehouses, laboratories, manufacturing sites, etc.
Most industrial properties are often located away from residential areas in specially zoned areas in most cities.
Like other commercial properties, industrial properties are also classified into four subtypes.
- Heavy Manufacturing: These industrial properties mainly house one tenant and are heavily customized to fit the tenant’s specific needs. The majority of the tenants are generally manufacturing companies.
- Bulk Warehouse: Due to the large size of bulk warehouses, they are mainly used for distributing manufactured goods.
- Light Assembly: These industrial buildings can be retrofitted to house other industrial tenants, create office space, or even set up residential units.
- Flex Space: These are easy to customize industrial buildings for businesses that need industrial and office space.
Whether you’re interested in investing, buying, or renting commercial properties, you need to consider that each type of commercial real estate comes with different risks and opportunities. The Covid 19 pandemic brought about tough times for commercial real estate. However, as the world adjusts to living with Covid 19, the CRE market is booming, and it can be profitable for interested parties.