Commercial Real Estate
Commercial real estate or “commercial property” is a term that refers to property/real estate of a non-residential nature, used expressly for business or commercial profit-generating purposes. The investor in commercial property leases out the space to businesses, collecting rent from them for financial gain. Each business occupying the building benefits in not having to pay costly up-front expenses that would apply if they purchased the building. Examples of property that are categorized as commercial real estate are office buildings, towers or parks; industrial parks, malls, restaurants, convenience stores and gas stations.
Commercial property is typically classified into six groups:
- Office properties or buildings – Included in this group are small professional office buildings, single-tenant properties, downtown skyscrapers and other real estate that falls in between.
- Multi-family – This category includes fourplexes or bigger apartment complexes, smaller multi-family units and high-rise condominium units.
- Retail/restaurant – Restaurant or retail sites are usually located on the lower floors of multi-family structures or office buildings particularly in urban areas. They can be freestanding. The category includes strip centers, power centers, community retail centers and regional malls.
- Land – Under this category, come investment properties on rural, raw or undeveloped land in the process of potential development, or infill land with pad sites, urban area and more.
- Industrial – Industrial property ranges from the smaller-sized ones, frequently termed “R&D” or “Flex” properties to the very huge “big box” kind of industrial properties. In between are the big office warehouse or office service properties. Clear height – the real height to the bottom of the steel girders in the building’s interior – is an important defining feature of industrial space.
- Miscellaneous – This category covers other non-residential real estate such as hotels, sports facilities, hospitals, public houses, theme parks, bowling alleys, theaters, car washes and funeral homes.
Leases pertaining to commercial real estate are differentiated on the basis of who (the landlord or tenant) pays for what (rent, property tax, insurance and maintenance). Anyhow, the tenant has to pay rent, whichever be the kind of lease he opts for.
Even though it is not without risk, commercial real estate has great money-spinning potential. The renowned fast-food giant McDonald’s (NYSE: MCD) owes much of its profits not to food, but to property assets.