Commercial real estate involves purchasing and leasing properties to business tenants to earn a return through rental income. Most investors gain access to these assets through public real estate investment shares. Such is beneficial since the management fee is low, and you can invest with a minimum stake.
Commercial real estate is an excellent alternative to residential real estate since it is exclusively for business purposes rather than a living space. Find out more about how individuals, investors, and corporates lease out and resell these properties to make a profit.
What are the Types of Commercial Real Estate?
Commercial real estate comes in various forms, from a single storefront to a giant shopping center. Each type of commercial building varies depending on location, space, and preference and serves a specific purpose and business need.
Below are some major classifications of commercial assets.
Multifamily properties serve majorly as residency, with two or more residential dwellings within the same building or group of buildings. They are available in the following categories;
- Duplex, triplex, and quadplex
- Garden apartments
- Mid-rise and high-rise apartments
Most office buildings are built to suit; however, they can be for multi-tenancy or single tenancy purposes. It could be for an accountant firm, investment advisor, research lab, or optician’s office. Office buildings can be classified into;
- Class A, B, and C
- Central business district offices
- Suburban office buildings
Industrial buildings are purposely for industrial operations and are located outside the urban setup along transportation routes. These properties can be manufacturing, distribution, or logistics facilities and are classified into the following;
- Heavy manufacturing
- Light assembly
- Bulk warehouse
- Flex industrial
Retail buildings have spaces leased to businesses that sell goods and services directly to consumers at a shopfront. Most investors prefer retail properties because they are visible and reliable, and tenants often sign up for long-term lease agreements. Retail properties are categorized as;
- General purpose centers
- Power centers
- Community retail centers
The demand for retail units depends on;
- Economic growth
- Employment status
- Population growth
- Lease contract terms
All real estate investments depend on the land, which makes it a high-demand property that most investors search for. Depending on reasons, most investors purchase land considering the location and infrastructural status as such have a favorable impact on land prices.
Besides the basic properties, investors also construct other buildings that are rendered commercial. Special-purpose facilities include churches, self-storage, amusement parks, bowling alleys, stadiums, theatres, and zoos.
Characteristics of Commercial Real Estate
Owning a commercial property does not mean it is valuable for the tenants. You should ask yourself, what space suits the business need of a tenant? Invest your time researching the features that can make your property a signature brand. The following qualities are significant to potential tenants;
Proximity to the Public
The location of a property has a significant impact on the commercial real estate sector. Most tenants prefer spaces that are near busy and populated areas. Such is essential to individuals with growing companies that depend on millennial skills as it will help them thrive.
A proper parking space makes a commercial property useful and inviting. A decent parking facility can be a breakthrough for tenants as most customers would only visit premises where they are comfortable and happy.
Authenticity is the key to building any business within a competitive market structure. Put effort and ensure your property has a character that makes it outstanding from the rest. It does not have to appeal as a modern sensation.
No individual would wish to spend their day in a poorly lit space with no view of nature. Considering modern aesthetics, a business space should have natural lighting to ensure the room looks attractive.
It is unhealthy for employees to sit at their desks all day; thus, space to sit and relax is essential to boost business productivity.
An agreement binds the contract between the tenant and the property owner. The tenant should know the percentage rise in rent and be familiar with the terms and conditions of the property.
Commercial Real Estate Management
Owning and maintaining a commercial real estate property requires a remarkable focus and operational expertise. If you are a property manager who wants to grow your portfolio, you can outsource a property management firm. Such will ensure you earn a passive and profitable income.
Commercial property management is bound to the duties and responsibilities of income-generating operations. You should be able to prioritize and perform various tasks like marketing, advertisements, and leasing. Additionally, you should be able to keep exemplary records for the finances, taxes, and mortgage, alongside insurance and investment updates.
As a commercial property manager, your responsibility lies in maintenance, financial and operational duties.
- Developing a properties maintenance plan
- Scheduling property upgrades and maintenance
- Maintaining and replacing landscaping
- Managing tenant issues
- Responding to emergencies
- Staffing and property
- Rent processing and collection
Professional property management services can be expensive, and finding a good property manager can be challenging. To avoid unnecessary expenses and a negative reputation, make the right choice. Consider an individual’s experience, certifications, education, licenses, association membership, and references. Good management will ensure adequate cash flow for the property’s investment performance.
How do Investors Make Money in Commercial Real Estate?
Investing in commercial real estate can be lucrative. These properties are high-reward investments that can make an investor a high-net-worth individual. When investors sell, they make money through property appreciation; however, most income comes from tenant rents.
Investors can earn through direct investments by becoming landlords. Alternatively, they can invest indirectly in the commercial market by owning market securities. To ensure a steady flow of income as an investor, consider the following tips;
- Invest in commercial property management software
- Always be upgrading
- Have a proactive property maintenance plan
- Keep your tenants happy
Commercial real estate has to advance to meet the demands of selective tenants, who expect more than just a simple property. Whether you are buying, selling, or investing, it is essential to understand the commercial real estate market. Ensure to get the right person who can get the job done. You are sure to build a highly reputable commercial business with efficiency, a positive mindset, and a focus on the property’s profitability.