What Is Commercial Real Estate?
Unlike residential real estate, which can only be used for living purposes,
commercial property is designed to house businesses and generate income. This
revenue can come from charging rent to tenants, running a business on the
premises or even through the sale of goods and services that are produced in the
property itself. Commercial real estate encompasses a wide range of property types
and uses, including offices, retail spaces, multifamily apartments, industrial
properties and hospitals.
A career in commercial real estate involves a wide variety of responsibilities and
requires specialized education. Those looking to pursue careers in this field should
strategically target specific niches within the commercial landscape based on their
backgrounds and areas of expertise. For instance, those with previous experience
working in restaurants should focus on buying, selling or leasing restaurant space.
Similarly, those with an interest in manufacturing or land development should focus
on that sector of the commercial landscape.
Local zoning laws dictate which areas of a city can be used for commercial or
residential purposes. This helps prevent overcrowding and encourages the growth of
specific industries in a region. For example, a manufacturer may want to locate in a
region with access to an airport and ports so they can quickly transport their
products. Other factors that influence demand for a particular type of commercial
property include consumer spending habits and the overall economy.
Commercial real estate can be a profitable investment for investors with sufficient
capital and specialized knowledge. This is often a more difficult endeavor than
investing in residential real estate, as lenders tend to view commercial loans as
riskier and require higher down payments. Those who choose to invest in
commercial property directly typically work with a real estate agent or broker to
research options and make offers. They may also choose to manage their property
themselves or work with a management company that specializes in managing
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There are eight different categories of commercial real estate, including office,
retail, industrial, mixed-use, multifamily and special purpose. Each of these
categories has its own operational quirks and risk/return profile.
Office space can be anything from a single-tenant building to a massive, multistory
complex with shared utilities and multiple tenant suites. Retail includes shopping
centers, malls and stand-alone stores and can be either multitenant or single-tenant.
Industrial properties are usually larger warehouses that can be used for
manufacturing or storage. Medical office space is a growing segment of the market
and is usually found in hospitals or office buildings. Mixed-use commercial properties
are those that can be used for a variety of purposes, such as office and retail space
or restaurant and hotel space. Multifamily real estate is a category that
encompasses apartment buildings and condo complexes, and special purpose
commercial can include things like churches and movie theaters.
Indirect investment in commercial real estate is a viable option for those who don’t
have the capital to purchase their own property or aren’t interested in managing
their investments on a day-to-day basis. This type of investment is often conducted
through REITs or crowdfunding platforms and involves purchasing shares in
companies that own, operate and lease out commercial property assets. Investors
can also become limited partners in a real estate syndicate or partner with private
equity firms.