Commercial Real Estate: A Primer


Commercial real estate refers to property used for income-generating purposes. It includes office buildings, warehouses and retail space, but also special-purpose properties like churches and bowling alleys. The main reason investors and business owners look to commercial real estate is to generate rental revenue.

Local zoning laws typically divide areas into two types of land: residential and commercial. Commercial properties are generally larger than residential ones and are primarily designed to serve businesses rather than households. As a result, they can be more expensive. In addition, commercial real estate investment often requires a higher level of financial sophistication than residential investments.

If you want to invest in commercial real estate, you’ll work with a professional broker. Unlike residential brokers who help buyers find homes, commercial real estate professionals specialize in helping clients buy and lease commercial spaces. They act as liaisons between multiple parties in a transaction and provide extensive market, demographic and location information to their clients. They can also help clients do financial analysis to determine whether a commercial space will be profitable for their company’s bottom line.

Some of the most common commercial real estate assets are industrial properties. These include factories, warehouses and distribution centers that store goods and services and transport them to consumers. Industrial tenants are usually looking for a central location that has easy access to highways and waterways, as well as the ability to expand their space as they grow. Warehouses can range in size from 50,000 to 1,000,000 square feet and are usually leased out on long-term contracts to companies that need a large area to hold inventory or distribute products.

The next major category of commercial real estate is offices. These can be general offices like accounting firms or investment companies, or they can be specialized spaces like dental and medical offices. These spaces are usually leased out on longer-term contracts than other types of commercial real estate, and the tenant’s profitability is tied to their product or service demand.

Another common type of commercial real estate is multifamily housing, which refers to apartment complexes and other forms of inhabited spaces that contain multiple units. These can be low-rise buildings with five to 12 stories, mid-rise buildings that are 12 or more stories and high-rise buildings. Other types of multifamily real estate are manufactured home communities and condos.

Direct investment in commercial real estate is usually limited to those with significant financial resources, but there are ways for smaller investors to get exposure to the asset class. For example, crowdfunding sites like CrowdStreet and DiversyFund allow hundreds or even thousands of small-time investors to pool modest sums for investing in commercial real estate. While this strategy is not without risk, it can be a good way for investors to diversify their portfolios with less cash on hand. In some cases, a real estate broker can structure a syndicate to purchase and manage a commercial property for an investor group.


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