Types Of Commercial Real Estate
The Different Types Of Commercial Real Estate
The first step to any successful career in commercial real estate is to understand that there are various types of commercial real estate. Commercial real estate, according to its technical definition, refers to the properties that have a potential to generate profit through a rental income or capital gain. While it is easy to understand the basics of these properties and this industry, each sector in commercial real estate or CMR presents with different elements. This article will provide information on each type of CMR.
1. The Office
Office buildings tend to be split into two separate categories: the urban office and the suburban office. An urban office building is typically found in larger cities and includes high-rise or skyscraper properties. Suburban offices, on the other hand, are smaller in size and will often be grouped as office parks. The office building can be either a single-tenant; multi-tenant or built-to-suit the needs of the office manager. They are also ranked according to a three-tier system looking at Class A, Class B and Class C. According to the Building Owners and Managers Association, the details of the tier system are as follows:
- Class A refers to the most prestigious of the CMR competing for premier office users. This building has higher rental rates and presents with the higher-quality finishing, state-of-the-art systems, and a strong marketplace presence.
- Class B buildings are also competitive in their tier, but they provide options for a wider range of users with rents being more affordable than Class A. These buildings are finished to a fair state, and their systems are adequate; however, they cannot match to the quality of the Class A building.
- Class C buildings compete for tenants searching for functional spaces and not premier designed offices. The rent for a Class C building is below average making them highly affordable but without high-quality finishing.
2. The Retail Structure
A retail structure is a type of CRE that houses both retailers and restaurants in an urban and suburban location. The building can be multi-tenanted, single-tenanted, or used as a standalone building. If it is used with multiple tenants, there is often a lead tenant that will drive traffic to the property.
The retail industry is a complex one and is dictated by metrics, such as the size, types of tenants, concepts of the stores, and the number of tenants. Furthermore, it is important to consider the trade area when developing a retail structure. A multi-tenant option would be more beneficial in an urban area while single-tenant buildings could be more beneficial in suburban areas, such as large box centers including Wal-Mart or Target.
3. The Industrial Building
Industrial buildings are used to house industrial operations for different tenants and are typically located outside of the urban area, particularly along major transportation routes. These buildings tend to take a low-rise structural approach and can be grouped into industrial parks. As with offices, industrial buildings are categorized into four types based on their function.
Heavy manufacturing factories are customized to accommodate heavy machinery that manufacturers need to produce goods and services. The light assembly industrial buildings are not as customized, but they also provide heavy machinery used for product storage and assembly. Bulk warehouses are buildings that act as distribution centers and are typically large in size. The flex industrial properties are a mixture of office spaces and industrial buildings.
4. The Multifamily Building
Contrary to popular belief, buildings that all into the multifamily sector fall into the commercial real estate industry. The multifamily sector refers to all types of residential properties outside of single-family properties, such as condominiums, apartments, townhouses, and co-ops. Similar to office buildings, these multifamily properties are divided into three different categories – Calls A, Class B, and Class C. The apartments, in particular, are divided into multiple types of properties.
According to Freddie Mac, apartments are divided into several types of properties including the following:
- High-rise apartments. The high-rise apartment refers to a building with more than nine floors and at least one or more elevators.
- Mid-rise apartments. The mid-rise apartment refers to a building with one elevator that is typically in an urban location.
- Garden-style apartment. The garden-style apartment refers to a building development that is built in a garden-style setting located in rural, urban, or suburban areas. These buildings may or may not have elevators.
- Special-purpose buildings. A special-purpose building is a property of any design and size targeting a particular section of the population. For example, a senior’s home or student housing will fall into this area.
Final Words On The Matter
As one can see, there are many different types of commercial real estate. It is important to know the difference between an office space and a high-rise apartment to be successful in this industry. Have you heard about Tenant Representation? Know why tenant representation is important when leasing commercial property.