Types of Commercial Real Estate Investment Properties
There are five types of commercial investment properties, each with a varied number of more specific subcategories. Each type has pros and cons associated with buildout costs, income streams, locations and sensitivity to market shifts. It is important to understand the nuances of each type of commercial property before you invest.
Multifamily
Multifamily properties range from duplexes to highrise skyscrapers, housing hundreds of units. The category also includes more specialized housing such as senior living and student housing. For more specialized housing, build-outs are more involved. This type of commercial real estate offers the security of multiple income streams but is largely dependant on location and proximity to amenities.
Industrial
Industrial properties include warehouses, flex space options, manufacturing plants, storage units and even showrooms. This type of commercial real estate has varied percentages of square footage dedicated to showing, selling and operating. The leases tend to be long term, owed to the specific build-out requirements. Once space is outfitted for a specific business, it is not cost-effective for them to relocate.
Office
This includes everything from commercially zoned homes to central business district complexes. For this type of real estate, location and proximity to amenities, like restaurants, are key. Parking and sometimes elevator access is also needed. Offices tend to have longer lease agreements, but because build-outs are less complicated, may have some turnover. The popularity of co-working spaces, like WeWork, is shaping the way office space is used.
Retail
Retail spaces have taken a hit from the popularity of e-commerce. However, spaces like grocery stores and pharmacies are not going anywhere. Retail spaces vary greatly from small boutique shops to malls. Many shopping centers depend on an anchor store and other out parcel businesses, like Starbucks, to drive business into the store. Because of this, the location is very important. Retail is shifting to more experience-based shopping in order to keep customers coming into brick and mortar stores.
Hospitality
This category includes boutique hotels, extended stay hotels, full and limited-service hotels, short term rentals and resorts. These businesses rely heavily on location and do better when close to airports, malls, restaurants and other amenities. They tend to be more flexible and therefore resilient, due to their ability to vary pricing and occupancy. However, they can suffer from bad reviews or a poor reputation.
When deciding what type of commercial real estate to invest in, it is important to understand the market. All markets fluctuate, but by being aware of the pros and cons of each investment property, these fluctuations can be sustained with ease.
