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3 Basic Types of Commercial Real Estate

Unlike residential real estate, which is only classified in several categories, commercial real estate is much different. When considering the different types of commercial real estate, people typically only think about: office buildings, company warehouses or shopping centers. However, what constitutes as commercial real estate is much more.

By definition, commercial real estate properties have the potential to generate profit through capital gain or rental income. As a business owner, it is important to know if your property is considered commercial real estate, especially if you’re want to apply for a loan.

Here are three basic forms of commercial real estate:

1. Office Buildings

Office buildings can be categorized by location and classification. Regarding location, there are two types: urban and suburban.

  • Urban Offices: These structures are usually located in the central business districts of cities like New York. Since these offices are located in the heart of the city, they include skyscrapers and high-rise properties, and can be as much as a million square feet in size.
  • Suburban Offices: These office buildings are typically much smaller and located outside of a city centers. They may be apart of office parks, which are usually assembled in several different midrise buildings, creating a campus-like setting.

While location is highly important, condition is also equally important. Based on condition, office buildings can be grouped into one of 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.
  • 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.

2. Multifamily

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.

Apartment rental buildings, in particular, are split into multiple property types. According to Fannie Mae and Freddie Mac, apartment buildings can be divided into 6 different classifications.

  • High-rise: This property is a building with nine or more floors and contains at least one elevator.
  • Mid-rise: Typically found in urban areas, this property is a multi-story building with an elevator.
  • Garden-style: A one-, two-, or three-story apartment development built in a garden-like setting whether it is in a suburban, rural, or urban location. These buildings do not necessarily contain elevators.
  • Walk-up: This property is a four- to six-story building and does not contain an elevator.
  • Manufactured housing community:  This property is a community where the operator leases ground sites to owners of manufactured homes.
  • Special-purpose housing: A multifamily property of any style that targets a particular population. Some of these segments include student housing, seniors housing, and subsidized housing, either low-income or special need.

3. Retail

As we mentioned before, people often think about shopping malls when it comes to commercial real estate, and they aren’t wrong. Shopping centers do fall into the category of commercial real estate, but this sector can be categorized much further. For example, these properties can be multi-tenanted or even 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

Conclusions

These are some of the most common commercial real estate properties; yet, there are other forms of real estate that constitute commercial real estate property as well. As a business owner, it is essential that you understand the type of property you own, especially if you are applying for a loan. By being able to correctly identify your property type, you will be able to speed up the loan process and improve your chances of obtaining your commercial real estate loan.

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