Commercial real estate is a broad term that encompasses a variety of property types, from retail stores and industrial warehouses to office buildings and multifamily housing. While each type of commercial real estate has its own set of unique characteristics, they all share certain similarities in terms of how they are bought and sold.
All in all, there are eight different types of commercial real estate properties. We will explore the different kinds of commercial real estate properties available on the market today, as well as some tips for investing in them. By understanding these key aspects of commercial real estate investing, you can make informed decisions about what kind of property fits your needs.
- Retail Properties
- Multifamily Properties
- Office Buildings
- Industrial Properties
- Mixed-Use Developments
- Special Purpose
1. Retail Properties
A retail property has leased spaces that merchants use to offer products or services straight to customers through a storefront. Investors prefer these properties since they are highly visible, and the tenants typically sign long-term contracts. However, their activity levels also rely heavily on broader economic conditions as well as consumer spending power.
Types of retail properties include:
Shopping centers known as power centers are typically between 250,000 – 600,000 square feet in size and serve the public within a 5-10 mile radius. These retail outlets typically feature a big-name department store brand such as Home Depot, Target, Costco, etc. as their main tenants while also providing room for smaller retailers to open shop, known as an outparcels.
An outparcel is an area of commercial retail property that’s set aside for smaller tenants, typically next to or inside of a big-name department store. Outparcels are usually leased as separate properties from the main space. They provide an opportunity for retailers to benefit from being associated with larger chains while still having their own distinct identity.
Strip Mall / Shopping Center
A strip mall is a short row of individual store fronts, typically situated along a busy road. These units are usually leased out to small business owners and may contain an anchor tenant to help draw customers to the area. Most strip malls will provide tenants with parking, which makes them attractive to customers and increases the value of the property. Strip malls may also be known as shopping centers or plazas, depending on their size.
Outlet Mall / Factory Outlet
Similar to a strip mall, an outlet mall is designed for business to rent space and sell merchandise at reduced prices. The main difference between the two types of commercial real estate is that an outlet mall usually has more anchor tenants and larger stores, whereas a strip mall will be comprised mainly of smaller independent shops. As such, an outlet mall can attract more customers, which makes it a great investment opportunity.
A power center, or Big Box Center, is a commercial real estate development that consists of multiple large retailers, often referred to as “big box stores”. These units are typically leased out to larger chains and may range in size from one acre to several acres. Most power centers will offer customers ample parking, and many are located in highly visible locations, making them desirable to potential investors.
A retail park is a large shopping area that may contain multiple stores, restaurants, entertainment venues, and more. These parks typically cover larger areas than other types of commercial real estate and attract more customers. They are often located in highly visible areas, making them an attractive investment for those looking to capitalize on the traffic generated by these developments.
2. Multifamily Properties
Multifamily properties are generally buildings that contain multiple distinct living units, such as apartments or condominiums. These units can be rented out to tenants on a long-term basis or sold off individually as separate investments. Multifamily properties provide investors with steady rental income and the potential for capital appreciation.
Types of multifamily properties include:
Garden apartments are one of the most popular forms of multifamily properties. These buildings usually consist of two or three-story units with each unit featuring a separate entrance and individual balcony or patio area. They often contain amenities such as swimming pools, exercise rooms, and laundry facilities to attract potential renters.
High Rise/Mid Rise Buildings
High rise and midrise buildings are larger than garden apartments and usually consist of five or more stories. These properties are designed to provide tenants with luxury amenities, such as concierge services, upscale lobbies, and expansive views. High-rise buildings often contain retail space on the ground floor as well, making them attractive to potential investors.
Townhouses or condos are usually smaller in size than apartment complexes and typically have fewer units. These properties are usually sold off individually as separate investments, providing investors with the potential for capital appreciation.
Senior Living Facilities
Senior living properties are designed to meet the needs of seniors who are looking for independent living arrangements that offer more amenities and support than traditional apartments or condos. These types of properties typically offer residents access to on-site health care, communal areas to socialize and amenities to keep residents engaged.
3. Office Buildings
Office buildings are commercial real estate properties that are designed for businesses to lease space and use as a workplace. These types of properties can vary in size and complexity, depending on their purpose. They may contain features such as shared conference rooms, private office spaces, or even retail space on the ground level.
Office buildings are typically categorized into one of four classes: Class A, Class B, Class C, or Class D. These are based on their quality of construction and location. Class A office buildings are the newest, highest quality, and most expensive type of office building. Class B buildings are middle-of-the-road properties that offer tenants adequate amenities at an affordable price. Class C buildings are the oldest, least desirable, and often in need of significant repairs or upgrades. Finally, Class D buildings are typically older buildings that may require additional investment before being ready for tenants.
Types of office buildings include:
Suburban Office Buildings
Suburban office buildings are typically located in the outskirts of a city, usually in an industrial or commercial area. These types of properties are usually smaller and may contain fewer amenities than their larger counterparts. However, they can be attractive to tenants looking for lower rent prices and less competition for office space.
Central Business District
Central business district buildings are generally located within the heart of a city’s most desirable areas. These types of buildings typically house tenants who prefer to be close to amenities and other businesses in the area. They usually contain high-end amenities such as enclosed parking, on-site security, and expansive lobbies.
Medical Office Buildings
Medical office buildings are designed to provide medical practitioners with the space they need to practice medicine. These properties may contain features such as exam rooms, laboratory spaces, or other areas specifically tailored for medical professionals.
Commercially Zoned Homes
Commercially zoned homes are residential properties that have been re-purposed to be used as a business or commercial facility. These types of properties can provide investors with the potential for higher returns than standard residential rentals, since they are able to charge higher rent prices due to their unique use.
4. Industrial Properties
Industrial properties are commercial real estate properties that are designed to house businesses involved in the production, assembly, or storage of goods and materials. These types of properties can range from small warehouses to large factories with multiple stories and hundreds of thousands of square feet. The type of property an investor chooses will depend on the specific needs of their business.
Specific types of industrial properties include:
Flex warehouses are warehouses that can be used for a wide range of applications. These types of properties feature mixed-use zoning, meaning they can house a variety of uses in the same space. The property usually contains a mix of office, storage, and manufacturing space, which can be retrofitted to meet the specific needs of different tenants based on their industry or business model.
Light assembly buildings are commercial properties designed to house businesses that require space for light manufacturing or assembling of goods, which are then shipped to distribution centers. Like flex warehouses, light assembly properties can usually be changed to accommodate a variety of tenants, depending on the type of product they manufacture.
Heavy manufacturing buildings are typically larger commercial properties designed to house tenants that require space for large-scale production and assembly of goods. These types of buildings may contain features such as heavy machinery, dedicated loading docks, and multiple floors designed to accommodate the specific needs of these tenants. Unlike light assembly buildings, heavy manufacturing spaces are often built for specific applications, making them difficult to retrofit for other tenants.
Bulk Warehouse / Distribution Centers
Bulk warehouses are typically larger industrial facilities ranging from 50,000 – 1,000,000 square feet that are used for storage and distribution. The main purpose of these properties is to store large amounts of inventory (often in the form of pallets, crates or containers) and distribute goods to other locations. Bulk warehouses usually have a loading dock for easy access and high ceilings so that items can be stacked and retrieved by order pickers. These properties are typically located near highways or rail lines for easy transportation.
Hospitality properties are commercial real estate designed for use by businesses in the hospitality industry. These types of buildings may contain features such as restaurants, bars, hotels, or other amenities specifically tailored to guests. They usually include high-end features such as spas, fitness centers, and luxury suites to attract visitors.
Specific types of hospitality buildings include:
Full-service hotels are large commercial properties designed to house a variety of amenities, such as restaurants, bars, conference rooms, and fitness centers. These types of hotels typically offer a wide range of services and may also include features such as spas and luxury suites.
Limited-service hotels are smaller commercial properties that typically offer fewer services and amenities than full-service hotels. These types of properties may include basic features such as a restaurant, bar, or conference room, but are often tailored more towards business travelers who don’t need the same level of luxury found in full-service hotels.
Extended Stay Hotels
Extended stay hotels are commercial properties designed to house long-term guests who need a place to stay for extended periods of time. These types of properties typically include features such as kitchenettes, laundry facilities, and multiple bedrooms in each suite.
Budget Hotels / Motels
Most budget hotels and motels are smaller commercial properties that offer basic lodging services for cost-conscious travelers. They usually have fewer amenities than full-service hotels or extended stay hotels and may only contain a few rooms. They are usually located near interstates, airports, or transportation hubs.
Resorts are large commercial properties designed to attract and entertain guests with amenities such as spas, fitness centers, golf courses, swimming pools, and other recreational activities. These types of properties typically offer a wide range of services and amenities and may also include restaurants, bars, and entertainment venues.
Land is any parcel of real estate that is not currently developed or improved. Land can be used for a variety of purposes such as residential and commercial development, farming, recreation, conservation, and more. Land can be bought or leased from the owner depending on the specific needs of the buyer.
Specific types of land include:
Agricultural land is any parcel of real estate used for farming, ranching, or agricultural production. There may be structures on the property that are necessary for the production of the crops or livestock, such as barns and other outbuildings.
Infill land is any vacant lot of real estate located in an established city or town. These types of properties are typically ideal for residential or commercial development, such as the construction of single-family homes or apartment buildings. They are may also be subject to zoning restrictions.
Brownfields are any parcel of real estate that has been previously developed but is now abandoned or underused. These types of properties often contain or are suspected of containing environmental hazards or contamination from previous use and require special attention before they can be redeveloped. These properties may have been the previous sites of heavy manufacturing, a gas station, or other industrial activities.
7. Mixed-Use Developments
Mixed-use developments are large projects that combine several different types of commercial real estate into one development. These may include office space, retail shops, restaurants, entertainment venues and more. Mixed-use developments are typically located in highly visible areas, such as in a downtown district or near a major highway.
8. Special Purpose
Special purpose properties are any commercial real estate that is designed and developed for a specific purpose but do not fit in any of the previously mentioned categories. These may include schools, amusement parks, aquariums, research facilities, and more. These types of properties often require specialized design, construction, and maintenance services to properly operate.
No matter what type of commercial real estate you’re looking to invest in, it’s important to do your research and understand the different types of properties available. Doing so will help ensure that you make an informed decision and get the most out of your investment.
For more advice on investing in commercial real estate, consult an experienced professional who can provide guidance and help you make the right decisions. At Martin Commercial Properties, we have decades of experience and an expansive network, in the commercial real estate industry, allowing us to leverage knowledge, resources, and influence generating wins for our clients.. Contact us today to learn more.