Private real estate broadly divides into two types: residential and commercial. Though news headlines often lump commercial real estate under a single header, the commercial real estate industry comprises multiple subsectors. Moreover, many commercial real estate firms and investors maintain assets in multiple subsectors to diversify their portfolios. Sometimes, different areas of commercial real estate overlap.
By and large, each type of commercial real estate is monitored and reported on separately to identify potential trends and investment opportunities. Read on to learn about the property types that fall under the umbrella of commercial real estate.
Office Real Estate
Office buildings may vary widely in architecture, from small multi-story structures to large urban high-rises. Office real estate typically falls into one of three categories:
- Class A. Class A office properties usually have prime locations and are considered the best of the best. You’ll find the word “high” often attached to Class A buildings—they feature high security, high property values, high rents, high-quality construction, and high-profile tenants.
- Class B. Many Class B buildings used to be Class A buildings, but time has taken its toll. Class B office locations usually offer convenient locations, good function and aesthetics, and mid-range rents.
- Class C. Whereas Class A and Class B buildings tend to appeal to larger enterprises, Class C buildings provide affordable, no-frills office space for small businesses and start-ups who need a place to put a desk and work.
Multifamily Real Estate
Multifamily real estate refers to apartment buildings, condominiums, townhouses, and other commercial buildings rented to smaller tenants.
- Apartment buildings. Apartment structures typically have a single owner or property management firm that rents units out to tenants.
- Though similar in structure to an apartment building, the residents own a condominium. Each occupant owns their individual unit and shares ownership and responsibility of public areas through a homeowner’s association.
- Townhouses operate similarly to a condominium, except each unit is more similar to a multi-story house than an apartment.
- Other types of multifamily properties include houses or small buildings broken into multiple rental units, such as duplexes or fourplexes.
Retail Real Estate
Retail space ranges widely in form and size. However, all exist to provide space to business tenants who sell products or services to consumers. With this mission in mind, retail real estate is often conveniently located for easy access by residents. Retail properties have several categories:
- Malls. Malls often span hundreds of thousands of square feet, containing room for dozens of stores under a single roof. In addition, malls often have one or more “anchor tenants,” a term referring to large retailers that draw customers to the property.
- Big box. Big-box retailers are vast stores, often taking up nearly as much space as a small mall might. Walmart is probably the most well-known example of a big-box retailer.
- Shopping centers. Usually anchored by a large national retailer—think Best Buy or Dick’s Sporting Goods, for example—shopping centers often have a mix of national brands and local brands. Shopping centers differ from malls in that stores are not interconnected internally, and consumers must travel outdoors to move between stores.
- Strip malls. A strip mall is a chain of small, connected retail spaces along a high-traffic local road. This property type is affordable compared to other retail spaces and usually features a grocery store or national retail brand.
- Standalone. These smaller, freestanding properties house a single retailer or restaurant.
Travel/Hospitality Real Estate
The bulk of the travel sector consists of hotels, motels, and restaurants:
- Hotels and motels. Hotels and motels rely on tourism and business travel for success, so they are often conveniently located near airports, highways, or business districts. The success of these properties depends heavily on the economy. Luxury and middle-grade hotels do well in a robust economic environment, while budget hotels and motels will struggle during recession periods when lower-income consumers lack disposable income.
- Restaurants. Restaurants walk the line between retail and hospitality real estate. They often occupy locations in malls, shopping centers, strip malls, and standalone retail properties. Much like hotels, restaurant real estate suffers whenever the economy takes a downturn, which can make this type of a real estate a higher risk investment.
Agricultural, Special Purpose, and Mixed-Use
Some types of commercial real estate defy easy categorization. For example:
- Agricultural properties might be considered residential or commercial, depending on the specifics of the operation and the zoning of the land.
- Special-purpose properties can house amusement parks, cemeteries, museums, hospitals, sports clubs, and numerous other types of businesses that don’t fit neatly into one of the other categories.
- Mixed-use. Mixed-use properties often serve more than one commercial real estate subsector. For example, an apartment building with an attached recreational or shopping center would be considered mixed-use.
Industrial
Industrial properties require special industrial zoning because they generate noise, traffic, odors, and other factors that might inconvenience a community if the space were too close to residential areas. Industrial real estate divides into three primary categories:
- Logistics. Warehouses and distribution centers account for significant demand in the industrial real estate sector. Warehouses primarily store goods or raw materials for production, whereas distribution centers fulfill orders to consumers or other businesses. Ideally, these properties should have easy access to airports and highways. As a subset of logistics properties, cold storage facilities provide essential storage for temperature-controlled products, such as refrigerated/frozen foods and vaccines.
- Manufacturing. Manufacturers range in size from small machine shops to large original equipment manufacturers (OEMs). Manufacturers occupy industrial space because they tend to generate noise and may potentially have high volumes of traffic.
- Flex space. Flexible industrial space gets its name for its adaptability. In these buildings, industrial businesses can “flex” the amount of office space within the structure to suit their needs. This type of structure is often popular with businesses that require some amount of warehouse space within their branch office or headquarters.
About Phoenix Investors
Founded by Frank P. Crivello in 1994, Phoenix Investors and its affiliates (collectively “Phoenix”) are a leader in the acquisition, development, renovation, and repositioning of industrial facilities throughout the United States. Utilizing a disciplined investment approach and successful partnerships with institutional capital sources, corporations and public stakeholders, Phoenix has developed a proven track record of generating superior risk adjusted returns, while providing cost-efficient lease rates for its growing portfolio of national tenants. Its efforts inspire and drive the transformation and reinvigoration of the economic engines in the communities it serves. Phoenix continues to be defined by thoughtful relationships, sophisticated investment tools, cost efficient solutions, and a reputation for success.