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  • Writer's pictureZach Gendron

Breaking Down the 10 Types of Commercial Real Estate (July 2023 Insights)

The term “Commercial Real Estate” gets thrown around often by the financial media when describing the current state of the non-residential real estate market. Unfortunately, the lack of specificity is problematic as Commercial Real Estate or “CRE”, encompasses a broad range of property types, each of which has a specific risk/reward proposition and unique reactions to market dynamics.


Let’s review the 10 types of Commercial Real Estate:


1. Multifamily


The term multifamily real estate comprises all residential real estate, with the exception of single-family homes. This type of commercial real estate includes high-priority investments like apartments, co-ops, townhomes, and more. Multifamily properties are often further subdivided into Class A, Class B, and Class C properties depending on their location, condition, and more.


Living spaces are essential, meaning multifamily buildings will always carry some degree of value, regardless of market conditions. Nonetheless, market factors influence the viability of opportunities across geographies.


2. Office


Office buildings account for another major real estate asset class which range from single-story suburban buildings to multi-story urban buildings. Because most office buildings are developed for multiple tenants, investors can generate several revenue streams. This structure provides a level of income diversity, helping investors to retain cash flow even in the event that a tenant terminates a lease. Recently, waning in-office attendance has created headwinds for office investors, even as companies prioritize quality space and employee experience.


Compared to other types of commercial real estate properties, office leases tend to be longer, too. Preparing spaces for new tenants, though, can be capital-intensive. Similar to Multifamily, office buildings are generally divided into three classes (Class A, B, and C), based on the building’s age, condition, location, and more.


3. Self-Storage


Self-storage facilities are warehouse-style buildings subdivided into smaller storage units. Historically, these were basic structures where individual units had a door, lock and key. Today, self-storage facilities can be high-tech with advanced climate control, lighting and security systems that offer a range of ancillary amenities for tenants.


This simplicity also lends itself well to scale. Understanding migration patterns and job growth can allow investors to enter new markets with relative ease, while keeping maintenance and utility costs low. While market conditions influence migration, self-storage is also relatively resistant to recession cycles.



4. Industrial


Industrial buildings are an attractive investment due to their long-term return and leases, as well as low overhead costs. These properties are ideal for a range of uses, including manufacturing, research and development (R&D), and the storage and distribution of goods.


Unlike other types of commercial real estate, industrial buildings are often located along interstate highways for added convenience in shipping and delivery. Especially as the eCommerce boom continues, and order fulfillment requires reimagined delivery infrastructure, industrial warehouses are in high demand.


5. Retail


Retail applies to any buildings occupied by businesses offering products and services to customers, including stores, malls, restaurants and more. The eCommerce boom has caused retail foot traffic to decline, but this type of commercial real estate still plays an important role in new ways within the retail business model.


Compared to other real estate asset classes, retail buildings tend to have longer leases. For investors, this means a stable source of cash flow, if the tenant can remain in a sound financial position.


6. Hotels & Hospitality


The hotels and hospitality category comprises buildings offering both short-and long-term accommodations to travelers, both for leisure or business purposes.


Some hotels are owned by a corporation, operating as part of a chain. Boutique hotels and AirBnB’s often feature a unique and thematic design concept, and are typically privately owned.


7. Land


Land is one of the riskiest types of commercial real estate to invest in, but can also offer the highest return. By definition, undeveloped land leaves the onus of generating revenue entirely on the investor. There are a few types of properties that fall within this category:


  • Agricultural Land: Also called greenfield land, this category includes farms, ranches, and other land without buildings

  • Infill Land: Urban plots that are currently vacant, but were once developed

  • Brownfield Land: Plots of land that previously held commercial buildings, usually with environmental stipulations


8. Mixed Use


Some properties fall into multiple real estate asset classes, making them mixed use properties. Many downtown high-rises are considered mixed use, with retail stores located on the first few floors and apartments above.


Mixed use properties may include real estate asset classes like retail, industrial, office, and residential.


9. Life Sciences


The life sciences property type has attracted significant attention following Covid-19. In fact, from 2020 to 2021, this asset class saw a 62% increase in investment volume. Life sciences is a loose umbrella term, including biotechnology, pharmaceuticals, and other fields related to advancements in healthcare and medicine.


While life sciences is one of real estate’s fastest growing markets, investors can face strong competition for development sites. Given the highly specialized operational needs across life sciences sectors, different companies have vastly different space and facilities requirements.


10. Special Purpose


Not all buildings align directly with the types of commercial real estate outlined above. Others are considered special-purpose real estate. These buildings are typically more difficult to valuate, given that there normally aren’t comparable properties in the area.

  • Amusement parks

  • Churches

  • Schools

  • Theaters

Overall, any building that’s created for a highly specific activity or group of people fits under this category.


Conclusion


Our focus at Limitless Investing has primarily been on Multifamily, Self-Storage, and Industrial opportunities due to their historically strong cash flow and long-term demand drivers.


With that said, we are always on the lookout for partnering with top-tier and experienced sponsors in other types of Commercial Real Estate to bring unique opportunities to our Investment Club.


Interested in Learning More?


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