All That You Need To Know About Commercial Real Estate
Published On 15-Aug-2022
Real estate is not only limited to houses and shops. It is quite a broad term and has got numerous branches and subtypes. A few significant and worth mentioning types include residential real estate, commercial real estate, luxury real estate, and many more.
In this blog, we will into commercial real estate in detail.
What is Commercial Real Estate?
Commercial real estate includes properties that are used purely for business purposes instead of residential uses, and are used to provide working spaces instead of living spaces. From a single storefront or shop to a multistory shopping mall, this category is comprised of numerous types of commercial properties.
Types of Commercial Estate:
The four main classes of commercial real estate include industrial, retail, multifamily rentals, and office spaces.
While the most commonly known types of commercial real estate include;
- Office spaces which are further categorized as Class A, Class B, and Class C.
- Residential duplex
- Hotels and resorts
- Healthcare complexes
How Investors Make Money in Commercial Real Estate?
Investing in commercial real estate can provide you with the strongest hedge against the volatility of stocks, inflation, and many other factors. Here is a list of a number of ways how investors make money by investing in commercial real estate.
Indirect investment in commercial real estate includes investment or ownership of various market securities by the investors. Two of the most common examples of it are owning real estate investment trusts and exchange-traded funds. These platforms invest in commercial property-related stocks and in companies that cater to the commercial real estate market. Common examples of such companies are banks and Realtors.
Direct investments in commercial real estate are based on the ownership of physical properties. The most common type of investors that invest in these types of properties is either those people who have a great knowledge of the industry or those who can employ firms to help them carry out the investment.
One requires a significant amount of capital to make a direct investment. One way to make a secure investment in commercial properties is to invest in an area where there is a high demand for commercial properties but a low supply.
Leasing Out Commercial Properties:
A business may own the building in which it operates. It is more common for commercial properties to be leased, however. Buildings are usually owned by investors and rented to businesses. A commercial lease rate is usually quoted in dollars per square foot, which is the price paid for occupying space over a specified period of time. As opposed to commercial properties, residential properties are often rented on a monthly or annual basis.
There are typically five- to 10-year leases for office and retail space, compared to more short-term yearly or month-to-month residential leases. In contrast, residential leases are typically shorter, running from one year to one month.
Common types of commercial property leases include;
- Single net lease
- Double net lease
- Triple net lease
- Gross lease
Managing Commercial Real Estate:
As the owner and manager of leased commercial real estate, you must be responsible for its ongoing maintenance and management. However, one of the easiest approaches that you can adopt to do so is to hire a commercial real estate management firm that may help you with;
- Retain and manage tenants
- Oversee leases
- Overview of financing options
- Coordinate property upkeep and marketability
In short, commercial real estate is one of the most lucrative investment options that provide you immunity to market volatility and other external factors such as inflation and declining immunity. Having numerous types and categories, you have numerous options to manage and lease out such properties.