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So what constitutes a commercial real estate? Well, a commercial real estate is one of the three main types of real estate, along with residential and industrial. Commercial real estate is property that is used solely for business purposes and that are leased out to provide a workspace rather than a living space.
Commercial real estate provides venues for companies to carry out daily operations as well as cater to customers conveniently. Companies generally lease commercial real estate in order to maintain cost-effectiveness and flexibility. investment trusts (REITs) are most often compiled of commercial real estate assets as opposed to residential real estate.
Types of Commercial Real Estate
Ranging from a single gas station to a huge shopping center, commercial real estate includes retailers of all kinds, office space, hotels, strip malls, industrial parks, restaurants and convenience stores. At a general level, commercial real estate will typically be shopping centers, office buildings, or warehouses. A more specific classification, however, will include the following:
Shopping malls/ centres fall into the category of commercial real estate. This sector, however, is categorized much further as whether they multi-tenanted or single use, standalone buildings.
The retail sector becomes further complicated based on other metrics such as:
- The type of shopping center
- The size
- The number of tenants
- And many other factors
Common types of retail space include:
- Strip Center. Strip centers are smaller retail properties that may or may not contain anchor tenants. An anchor tenant is basically a larger retail tenant which usually serves to draw customers into the property. Examples of anchor tenants are Wal-Mart, Publix, or Home Depot. Strip centers typical contain a mix of small retail stores like Chinese restaurants, dry cleaners, nail salons, etc.
- Community Retail Center. Community retail centers are normally in the range of 150,000-350,000 square feet. Multiple anchors occupy community centers, such as grocery stores and drug stores. Additionally, it is common to find one or more restaurants located in a community retail center.
- Power Center. A power center generally has several smaller, inline retail stores, but is distinguished by the presence of a few major box retailers, such as Wal-Mart, Lowes, Staples, Best Buy, etc. Each big box retailer usually occupies between 30,000-200,000 square feet, and these retail centers typically contain several out parcels.
- Regional Mall. Malls range from 400,000-2,000,000 square feet and generally have a handful of anchor tenants such as department stores or big box retailers like Barnes & Noble or Best Buy.
- Out parcel. Most larger retail centers contain one or more out parcels, which are parcels of land set aside for individual tenants such as fast-food restaurants or banks.
Office buildings, a type of commercial real estate, can be categorized by location and classification. Relating to location, there are principally two types: urban and suburban.
- Urban/ Central Business District(CBD) Offices: These structures are located in the heart of city, for example, London. In large cities and in some medium sized cities, these buildings would include skycrapers and high-rises found in downtown areas.
- Suburban Offices: These office buildings are typically much smaller and located outside of a city centers. Thus, they may be apart of office parks, which are usually assembled in several different midrise buildings, creating a campus-like setting.
Further from location, as important as it may be, condition is also plays an important role. And relating to the condition, office buildings group into one of the following three categories:
- Class A: These buildings are considered the best of the best. The construction is high quality, they possess state-of-the-art systems and have great accessibility in addition.
- Class B: Offices in this group may have high quality construction, but may have a less desirable location.
- Class C: Buildings in this class often compete for tenants that require functional space at rents below the average for the area
This sector covers residential real estate that falls outside of single family. Similar to office buildings, multifamily properties can be classified into the 3 classes: Class A, Class B and Class C. These buildings are in the following categories:
- Garden Apartments. Suburban garden apartments started popping up in the 1960s and 1970s, as young people moved from urban centers to the suburbs. Garden apartments are typically 3-4 stories with 50-400 units, no elevators, and surface parking.
- Midrise Apartments. These properties are usually 5-9 stories, with between 30-110 units, and elevator service. These are often constructed in urban infill locations.
- Highrise Apartments. You will often find Highrise apartments in larger markets, usually consists of 100+ units, and with professionally management.
Hotels generally would fall into the category of special purpose property. Hotels can be categorized as follows:
- Full service hotels. Full service hotels are usually located in central business districts or tourist areas, and include the big name flags like Four Seasons, Marriott, or Ritz Carlton.
- Limited service hotels. Hotels in the limited service category are usually boutique properties. These hotels are smaller and don’t normally provide amenities such as room service, on-site restaurants, or convention space.
- Extended stay hotels. These hotels have larger rooms, small kitchens, and are designed for people staying a week or more.
- Heavy manufacturing. This category of industrial property is really a special use category that most large manufacturer’s would fall under. These types of properties are heavily customized with machinery for the end user, and usually require substantial renovation to re-purpose for another tenant.
- Light Assembly. These structures are much simpler than the above heavy manufacturing properties, and usually can be easily reconfigured. Typical uses include storage, product assembly, and office space.
- Flex warehouse. Flex space is industrial property that can be easily converted and normally includes a mix of both industrial and office space.
- Bulk Warehouse. These properties are very large, normally in the range of 50,000-1,000,000 square feet. Often these properties are used for regional distribution of products and require easy access by trucks entering and exiting highway systems.
- Greenfield Land. Greenfield land refers to undeveloperd land such as a farm or pasture.
- Infill Land. Infill land is located in a city that has usually already been developed, but is now vacant.
- Brownfield Land. Brownfields are parcels of land previously used for industrial or commercial purposes, but are now available for re-use. These properties are generally environmentally impaired.
The above categories of real estate cover the major types of commercial real estate. However, there are still plenty of other types of commercial real estate that investors construct and own. Examples of special purpose commercial real estate include self-storage, car washes, theme parks, bowling alleys, marinas, theaters, funeral homes, community centers, nursing homes, and churches.
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