Commercial real estate goes beyond office buildings and retail plazas. That is an expansive category and there are many different property types that play a distinct role in the economy. Knowing the types of commercial real estate is an essential part of recognizing opportunities and building a balanced portfolio for investors. For business owners, it narrows down the space that is most suited to their business operations.
How is Commercial Real Estate Different?
Commercial properties are intended for business usage, not for personal living. They earn in the form of leases, long-term tenants, or purpose driven operations. While commercial investments tend to provide greater earning potential over longer periods of time due to the nature of the leases being much longer as well than can be found in residential leases, commercial real estate works on an entirely different risk/reward system compared to residential.
Within each property type there is a different reaction to changes in market demand, economic cycles, and changes in industry trends, but before diving into these categories, a clear understanding of property types is necessary.
Office Assets: At the Heart of Business Activity
One of the most synonymous forms of commercial real estate for property investors is office properties. They offer office space to freelancers, small businesses and even multinationals.
How Office Spaces are Classified
- Class A − newer, high-end buildings with high-end amenities
- Class B − well-maintained, mid-tier spaces
- Class C − the oldest properties with the lowest rents
Cost of arrangement, location, and size of the workforce – the type of office that a company has is determined by many factors including the budget, location, and the amount of people that need to be managed.
Retail Properties: Serving Consumers Directly
Retail properties are those where goods or services are sold to end users. Retail is still the backbone of many businesses, such as restaurants, salons, gyms, grocery stores, and medical clinics, even with the rise of e-commerce.
Examples include:
- Single-tenant stores
- Neighborhood shopping centers
- Malls
- Restaurant pads
- Convenience plazas
In this category, nothing else matters as much as location.
Industrial and Logistics: The Most Expanding Sector
Of all the types of commercial real estate property, industrial ones are the hottest on the market today. They are proponents of shipping, storage, manufacturing, and e-commerce fulfillment.
These properties cover:
- Warehouses
- Manufacturing facilities
- Distribution hubs
- Flex spaces
Investors love it because industrial real estate is usually lower vacancy with long-term tenants.
Multifamily Housing – Optimal Steady Income Source
Any residential building that is more than four units is considered commercial. Apartment buildings generate predictable income because people always need somewhere to live, even when times are tough.
This category includes:
- Apartment complexes
- Townhome communities
- Mixed-use buildings with residential units
For investors, multifamily properties are highly occupancy-friendly and generate stable income.
Hospitality: Hotels, Resorts, and Lodging
Properties that cater to travelers and tourists fall under the hospitality sector. The sector itself is among the most active types of commercial real estate, but at the same time, also one of the areas that is most vulnerable to recession.
Examples include:
- Boutique hotels
- Extended-stay lodging
- Resorts
- Motels
Revenue varies with travel trends, tourism, and business demand.
Special-Purpose Commercial Properties
There are some commercial buildings that are one use only. While their uniqueness can be challenging, they also provide outsized returns if paired up with the right operator.
This category includes:
- Hospitals and clinics
- Storage facilities
- Car washes
- Data centers
- Schools and training facilities
- Auto dealerships
These assets are niche and require specific knowledge, but can provide great reliability over the long term.
