What is Commercial real estate?

commercial real estate

Commercial Real Estate is the property used for commercial activities like office spaces, company purpose, retail purpose, industrial purpose , large residential property for rent purpose, these activities will proceed in Commercial property. Commercial property are more often used to give the property for tenants to generate their income activities.

Commercial real estate property is a property mainly used for business or for income generating activities. The use of property may from small store house or retail shop to big malls or restaurants, every single income activity is done in the given space known as commercial property or building. And the large residential property will taken and are rented out, etc. The owners of these buildings or lands need to pay additional taxes in compliance with the government’s policies and laws.

Types of Commercial Property

There are many category that comes under Commercial Real Estate. Commercial real estate is used in commerce, and multi-unit rental properties that serve as residences for tenants are classified as commercial activity for the landlord.

Multifamily rentals

Apartments or high rise building that rent out the flats by the owner to make income out of it, i.e., the building is used for commercial purpose. The multifamily sector covers all types of residential real estate outside of single-family, including apartments, condos, co-ops, and townhomes. 

  • High-rise: A building with nine or more floors and at least one elevator.
  • Mid-rise: A multistory building with an elevator, typically in an urban area.
  • Garden-style: A one-, two-, or three-story apartment development built in a garden-like setting in a suburban, rural, or urban location; buildings may or may not have elevators
  • Walk-up: A four- to six-story building without an elevator.
  • Manufactured housing community: A community in which the operator leases ground sites to owners of manufactured homes.
  • Special-purpose housing: A multifamily property of any style that targets a particular population segment, including student housing, seniors housing, and subsidized (either low income or special need) housing.

Office Space

commercial office space

Office space is the more professional commercial real estate business, where the commercial buildings are given to the use of commercial purpose like the property will given for commercial leases or rentals to tenants to use as their work space to make their own income.

There are different kinds of office space:

Class A – Most prestigious buildings competing for premier office users with rents above average for the area. Buildings have high-quality standard finishes, state-of-the-art systems, exceptional accessibility and a definite market presence.

Class B – Buildings competing for a wide range of users with rents in the average range for the area. Building finishes are fair to good for the area. Building finishes are fair to good for the area and systems are adequate, but the building does not compete with Class A at the same price.

Class C – Buildings competing for tenants requiring functional space at rents below the average for the area. Medical office buildings are a specialty sub-sector in this space.


Industrial buildings or the large store house are the space used to manufacture products or to store the manufactured products. The properties are categorized into four types:

  • Heavy manufacturing: These buildings are heavily customized and house machinery manufacturers need to operate and produce goods and services.
  • Light assembly: These aren’t as customized and may be used for product assembly or storage.
  • Bulk warehouse: These properties are usually large and are used as distribution centers.
  • Flex industrial: These properties contain a mix of both industrial and office space.


commercial retail real estate

It includes small stores, outlets, grocery stores along with other and anchor stores for brands located in small localities, highway and outlet malls. It also includes restaurants and cafes. There are different kinds of retail commercial real estate and are classified as :

Malls – These properties are probably the easiest to identify on the retail landscape. The shopping areas of malls are typically enclosed, with the majority of the stores under a roof.

Lifestyle centers – lifestyle centers are essentially upscale malls without roofs, but they may not have a department store as an anchor. With an in-line tenant lineup similar to malls, lifestyle centers range between 150,000 square feet and 500,000 square feet, though they can go larger.

Factory outlets – Often incorrectly called outlet malls (a vast majority aren’t enclosed), most people can identify an outlet center. They’re known, of course, for outlet stores run by nationally-known name brands, ranging from mid-priced to luxury. 

Community centers – These usually get thrown into the category of what people refer to as strip malls or shopping centers.

Convenience centers – These are very small properties that are less than 30,000 square feet and filled with, well, convenience-based retailers, such as dry cleaners, nail salons, drug stores, and other types of shops where customers are looking for a quick purchase or service.

Hotels / Hospitality

hotel real estate

The hotel sector covers establishments providing accommodations, meals, and other services for travelers and tourists. The hotels may be independent (boutique) or flagged—the latter means it’s part of a major hotel chain. Hotels are divided into three different categories. Full-service hotels are large, multi-room hotels with at least one bar or restaurant. Limited-service hotels are smaller, more bare-bones hotels that may not offer services like concierge, 24-hour desk services, or turn-downs. Extended stay hotels offer larger rooms which are more similar to serviced apartments. Hospitality real estate mainly exists to serve travelers and people looking to unwind. Resorts, entertainment parks, home-stays, and more come under this category.

Advantages of Commercial Real Estate

  • The biggest advantage of Commercial real estate is attractive leasing rates. Commercial real estate can have impressive returns and considerable monthly cash flows, in the areas where the amount of new construction is either limited by land or law.
  • Commercial Real estate also benefits with long term lease when compare to residential property.
  • Industrial buildings generally rent at a lower rate, though they also have lower overhead costs compared to an office tower.
  • It is the rich source of income, as you maintain and kept the property up to date.
  •  Income stability can keep investors stress-free even when the financial market is volatile, as the commercial real estate market is not affected directly due to a dull financial market.
  • It is a historical fact that commercial properties have always offered excellent appreciation value compared to other asset types. Proactive management and making cost-effective improvements can improve the desirability of the asset.
  • Buying a commercial property in the right location will keep investors safe from loss of cash inflow even during times they don’t have tenants occupying their properties.
advantages and disadvantages of commercial real estate

Disadvantages of Commercial Real Estate

  • Commercial real estate requires large investments, an involvement of a heavy amount in case of commercial property than in case of residential property.
  • The interest rates and terms and conditions will also depend on the kind of property, investors’ profile, location and the tenure of repayment.
  • Finding the right kind of tenant for commercial property like a shop or a showroom may be slightly difficult than finding a tenant for residential property.
  • The maintenance or renovation in a commercial set up will usually be huge.
  • Commercial real estate needs to be thorough research by the investor as to what will be the overall cost in acquisition of the property, the taxes involved, the zonal laws and bylaws for renting out and the rental earning potential of that building or shop. 

Difference between Residential & Commercial Real Estate

  • Commercial Real estate[CRE] includes the property like retail, office, and industrial properties, apartments, daycare centers, condominiums, movie theaters, parking lots, industrial floors, warehouses, and retail spaces occupied by brands like Big Bazaar, Croma etc., as of residential real estate[RRE] includes the house or flat that is typically rented, not occupied by owner.
  • As an investor, or rather, a retail investor, RRE might seem easier to get into when compared to CRE.
  • The initial investment is pretty large for a retail investor in most cases and one needs to have a good understanding of the market’s demand and supply in order to properly assess the benefits of this investment when compare to residential investments.
  • When compare to investments, which is better, commercial or residential? It depends on the person or the investor’s financial obligation, these two investments differ in the way they are approached. As an investor, you should take time to think about the goals you are trying to achieve.
  • Mostly, Residential property occupies with short term of leases when compare to commercial property and the also the commercial leases costs more when compare to residential.
  • Commercial properties are used mainly for business or investment purpose whereas the residential is used by families and individuals.

Bottom Line

Commercial Real estate is the vast concept, before buying the property please make sure about the documents, terms and conditions. make a list of pros and cons of all the properties you are interested to buy and get the real estate expert advise, as you need to make a large research and time to research rather than you could take a help of agent.


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