Commercial Real Estate in a Nutshell
Understanding the basics of commercial real estate is essential in trying to figure out which profession to pursue in the real estate industry as it continually evolves. Knowing the nuances between residential, commercial, and industrial can help with a sense of direction and determining long-term business goals for an individual or organization.
Commercial real estate (CRE) is slightly different from real estate property since it is used for generating profits.
Types of commercial property
- Apartment buildings
- Office space
Although apartment buildings are built for residential use, they are used to bring in more income from tenants.
Generally, office space is grouped into categories to define the quality of amenities, management, location, and more. These categories can be applied to properties other than office space, such as homes, apartment buildings, and other CRE. It’s commonly used more so with that particular real estate than the other listed.
- Class A - This is the best category given to an office space. Buildings listed as Class A are new with a state-of-the-art design and the price point to match its quality. Proximity to other quality commercial properties in the area can also raise the value especially if it’s located in certain areas downtown. For example, Wall Street would be a prime area to invest in commercial real estate.
- Class B - This is a fairly decent building. It’s a bit older, but renovations can easily turn this building back into the Class A category. These buildings tend to be smaller unlike the high-rises for Class A.
- Class C - This is the lowest quality building. According to Commercial Real Estate Loans, these buildings are much smaller with an undesirable location. Family and small businesses tend to occupy this space.
Is this similar to industrial real estate?
Not necessarily. Industrial real estate focuses on targeting buildings and land tailored for industrial use. Warehouses, factories, manufacturers, or anything on production and assembly would all fall under industrial real estate. Location and land are key in this instance if you’re thinking about buying or selling industrial property.
Let’s use Elon Musk who has a multitude of properties for Tesla alone. Tesla’s headquarters and service centers are considered commercial real estate while the factories and manufacturers for its car parts are industrial properties.
Which one is more lucrative, residential or commercial real estate?
Although residential real estate sells quicker, commercial property tends to have a higher value. Businesses in both residential and commercial can easily assess which brings in more money but requires more time and vice versa. The key to navigating CRE is to have a business plan with a quarterly goal, particularly to assess the value of properties that are hitting your desk instead of the number of properties.
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