Commercial Real Estate Investing 101: 5 Types of Commercial Real Estate

With today’s market volatility, commercial real estate investing is a great option for investors looking for a stable and reliable investment. If you’re looking into commercial real estate investment opportunities, this is a good time to understand the types of commercial real estate available. From light industrial and self-storage facilities to apartment complexes and office space – there are plenty of opportunities for commercial real estate investing in Bellingham and beyond.

Commercial Real Estate Investing 101: 5 Types of Commercial Real Estate

First, let’s talk about what is commercial real estate? A commercial real estate property is typically leased out for business and retail purposes. A commercial real estate investor purchases or develops properties or raw land that have been designed for the purpose of leasing to commercial tenants. The commercial real estate investor collects rent from the business that occupies their commercial space.

Commercial properties serve a broad range of purposes but are generally grouped into five main categories: office, retail, industrial, multifamily, and special purpose. Many commercial real estate investors specialize in a commercial asset type so it’s important to understand your options before making your first investment.

Let’s take a look at the five types of commercial real estate:

1. Office space

Office space is the most common type of commercial real estate. Office space can run from a small single-tenant space in a strip mall all the way up to a towering skyscraper. Office space is broken down into the following three categories: Class A, Class B, or Class C, based on the quality of the investment.

Class A commercial real estate properties are typically:

• Newly built or fully renovated
• In an excellent location with easy access to amenities
• Managed by professional real estate management companies
• Low vacancy rates

Class B commercial real estate properties are typically:

• Older buildings that need capital investment
• Well-maintained and managed but in need of minor repairs and upgrades (making them popular with investors)

Class C commercial real estate properties are typically:

• Used for redevelopment opportunities
• Located in an undesirable location
• Require major capital investments to improve out-of-date infrastructure
• Higher vacancy rates

Why investors choose office space:

Office space is a popular commercial real estate investment because it offers a reliable cash flow source. Office tenants typically sign longer lease terms than residential real estate, often staying for many years.

2. Retail

Retail buildings are another popular option for commercial real estate investment. Retail space is used to sell products or services to the public, ranging from clothing stores, to banks and restaurants. Retail buildings are commonly located in urban areas in strip malls, community retail centers, or mixed-use spaces. The size of retail properties can vary widely; anywhere from 5,000 square feet to 350,000 square feet.

Why do investors choose retail properties:

Retail properties are desirable investments because they provide steady cash flow from longer-term leases. In addition, many retail tenants sign a triple net lease, which puts a portion of the operating costs, taxes, and building insurance onto the tenant.

3. Industrial

Industrial properties are typically used for large-scale storage, manufacturing, and warehousing. Other examples are refrigeration and cold storage centers, showrooms, and telecom or data storage centers. Industrial tenants require these spaces for their height and space specifications and docking availability.

Why do investors choose industrial properties:

Industrial real estate is a solid investment because space is in high-demand and consistently leased, often on a triple net lease like retail spaces. The manufacturing industry is strong in the U.S. right now and businesses need industrial space to manufacture, store and ship their products from. With online sales taking over a bigger portion of the market, business owners are turning more to industrial space over traditional retail space

4. Multifamily

Multifamily properties are residential properties with multiple residences in one building. Some examples are high-rise condominium units, apartment complexes, row townhomes, and smaller multifamily units such as duplexes and quadruplexes. Multifamily properties are classified as a commercial property when they have more than four units.

Why do investors choose multifamily properties:

Despite their shorter leases, multifamily properties can be a very reliable source of income in markets where rentals are in high demand (almost everywhere). Many residential investors make the transition from residential real estate to commercial properties by expanding into larger multifamily properties.

5. Special purpose

Special purpose properties are designed for very specific uses. While they may lack the ability to be repurposed easily, they fill many niches – especially in the leisure and tourism industries. Some examples of special purpose properties are hotels, amusement parks, car washes, self-storage facilities, and parking lots.

Why do investors choose special purpose properties:

With the right tenants, special purpose properties have the potential to be a great investment.

How to choose the right type of commercial property

When you’re just starting out, finding the right type of commercial real estate investment can be a challenge. Whatever type of property you choose, there will always be pros and cons so it’s important to do your research before deciding.

Turn to Windermere for real estate done exuberantly right.

For 50 years, Windermere has used our extensive knowledge of local markets to offer a full range of services that match your commercial real estate needs. Whether you’re a business looking to buy or lease space, or an investor interested in private capital or institutional properties, you’ll benefit from our experience in all phases of commercial real estate, including leasing, business development, brokerage, property management, and consulting.

You can depend on our powerful network

Windermere Commercial has established connections with highly reputable brokers throughout the nation. We also have the benefit of being affiliated with Windermere Real Estate, so you aren’t simply hiring a broker; you’re hiring an entire company with an extensive team of dedicated professionals whose highest priority is to help you reach your commercial real estate goals.

Are you interested in owning commercial real estate property? Connect with our people today.