Commercial real estate involves properties used for commercial purposes, as
opposed to residential, which refers to property used as a home. There are different
types of commercial properties, including office, retail, industrial, multifamily
(apartments with five or more units), hotel and special purpose properties. Buying
commercial property provides investors with income streams through rental revenue
or capital gains from the sale of the property.
Commercial buildings are generally larger than residential property and typically
located on more substantial plots of land in high-traffic areas that benefit from high
visibility. As such, they are often more expensive than their residential counterparts.
However, investment in commercial real estate can provide greater returns than
residential property because it is leased to businesses rather than individuals.
What is the definition of commercial real estate?
The technical difference between commercial and residential real estate is that
single-family homes and one- to four-unit rental apartments constitute residential
property, while any building with more than a single-family home or apartment
qualifies as commercial. Multifamily property includes condos, duplexes and
quadruplexes as well as apartments with five or more units. Office, retail, industrial,
multifamily, mixed-use, office and special purpose are the main categories of
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In addition to these common property types, there are other forms of commercial
real estate that can include hospitals for medical offices, cold storage facilities for
food and other perishables, affordable housing communities and manufactured
housing communities. Investing in commercial real estate can be done directly
through the purchase of individual properties or via investments in a REIT, which is a
publicly traded company that owns and operates a portfolio of real estate assets.
Investors can also become part of an investment fund or syndicate that invests in
multiple property types for a lower overall risk.
A career in commercial real estate requires strong interpersonal and negotiation
skills, as well as a thorough understanding of local tax laws and zoning regulations.
Because the industry is regulated, brokers must be licensed and certified by their
state or territory. They must also have a backup fund of six months to a year’s worth
of expenses in case of a slowdown in activity.
A commercial real estate broker typically specializes in a particular property type or
market segment. For example, an agent who has restaurant experience can
strategically focus on selling, leasing or financing restaurant space. Others choose a
specific industry to target, such as the healthcare sector for hospitals or the leisure
sector for hotels and resorts. To be successful, they must have a solid understanding
of the business operations and financial performance of their clients’ companies as
well as the local economy to make informed recommendations. They must be
comfortable with a variety of marketing and sales strategies as well as have the
ability to analyze a client’s business needs to match them with the right property.
Then, they must negotiate with sellers and buyers to complete the transaction. To
maximize their revenue, a commercial real estate agent should keep abreast of
current industry trends.