What is Commercial Real Estate?

What is Commercial Real Estate?

Commercial real estate is a main type of real estate that involves properties used for commerce purposes.

WHAT IS COMMERCIAL PROPERTY?

A commercial property is any building or land that you use with the intention of making a profit, either through rental income or through capital gained from a business that makes use of said property.

WHAT ARE THE TYPES OF COMMERCIAL PROPERTIES?

The six most common categories of commercial property are:

  1. Office buildings, including single-occupancy buildings and professional office buildings
  2. Industrial real estate, including light storage, warehousing, research, manufacturing, assembly, production, and distribution (*Buildings that meet office requirements of tangible goods production may also be considered industrial real estate.)
  3. Retail/restaurant
  4. Multifamily, an apartment complex or hi-rise that generates rental income
  5. Land, including undeveloped investment properties
  6. Miscellaneous, including items not covered by the categories above, i.e. hospitals, hotels and storage unit facilities

Those preferring not to use the miscellaneous category may include further types like healthcare for hospitals and leisure for hotels.

WHAT IS A COMMERCIAL LEASE?

A commercial lease is a lease for a business, rather than for personal use. It is a rental contract between a landlord and a business.

WHAT ARE THE DIFFERENT TYPES OF COMMERCIAL LEASES?

Types of leases include:

  • Percentage Lease, popular in retail businesses, which calculates the rent by adding a percentage of monthly sales to a base number
  • Gross Lease, or Fully Serviced Lease, where the landlord pays all costs besides rent, like taxes, insurance and maintenance, although they may build these costs into the lease, called a Load Factor
  • Net Lease, where the business pays some or all of those costs directly
  • Double Net Lease, where the business pays for all the taxes and insurance
  • Triple Net Lease, where the tenant pays for everything

WHAT DRIVES COMMERCIAL REAL ESTATE PRICES?

Like residential real estate prices, supply and demand drive commercial real estate prices. When areas have or build more commercial real estate than there are businesses or investors interested in taking them on, prices tend to drop. If there are more people trying to start businesses in a certain area than available commercial properties, prices will climb.

WHAT FACTORS AFFECT THE COMMERCIAL REAL ESTATE MARKET?

Job growth is one factor that can affect the commercial real estate market, as more job growth means greater demand for commercial space. The general state of the economy is also a big factor, as businesses doing well will be looking to expand, while those doing poorly may downsize. The internet and the rise of online shopping have been a sustaining negative factor on commercial real estate, as brick and mortar businesses struggle to compete with online businesses that have much lower overhead.

WHY IS COMMERCIAL REAL ESTATE A GOOD INVESTMENT?

Commercial real estate provides a stable cash flow. Investing in a building you can rent to others, whether residents or businesses, means regular monthly income that is not dependent on the success of a commodity, good or service, as with a stock. Commercial real estate is a hard asset that is a limited resource — there is only so much commercial real estate to go around.

WHAT IS THE AVERAGE COST FOR COMMERCIAL REAL ESTATE?

Cost for commercial real estate varies widely depending upon the size of the property, the location and other factors. When trying to get the best rate for your commercial real estate, it’s important to work with someone who understands the local market. Contact your local Coldwell Banker Commercial affilaited professional to discuss all your commercial real estate needs.

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