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Different Types of Commercial Real Estate

Commercial Real Estate Las Vegas can generate a steady income stream for investors. It can also diversify a portfolio and reduce exposure to market fluctuations.

Investors purchase and lease properties to organizations that use them for business. These tenants then pay rent to cover property expenses and provide cash for distributions to investors.

Office buildings are a major segment of commercial real estate, which encompasses any property used for business purposes and not for housing. This can include anything from a skyscraper in the heart of Manhattan to a single-story brick building in the suburbs. The value of commercial real estate is determined by its leasing potential, meaning the amount of money that can be generated through renting out space in the building to a tenant.

While residential properties have been largely limited to homeowners or renters, the commercial market includes structures rented out for non-residential purposes like offices, retail spaces, industrial facilities and even medical centers. Investors in commercial property may choose to buy the actual buildings themselves, or invest in a more indirect manner by purchasing stock in real estate investment trusts (REITs) and exchange-traded funds that focus on these assets.

The most common type of commercial office building is a general office, which is generally occupied by white-collar professional services and tech companies. However, there is also a sub-asset class of medical office buildings that must be built to accommodate specialized needs related to safety, liability and privacy for patients. This type of building is often harder to convert back to general office use, as it requires significant tenant improvements that take into account the specific nature of the business.

Another important determinant of the value of an office building is its location. Whether in the heart of a metropolitan area or on the outskirts of a city, the location of an office building will influence its demand and leasing rates. In general, tenants attracted to a central business district (CBD) are more established professional services or tech companies, while businesses seeking lower leasing rates may be more drawn to suburban office parks.

In order to help the commercial real estate industry better identify and compare office buildings, buildings are categorized into different classes. These classifications are subjective and can change, but they serve as a valuable tool for landlords, investors, brokers and tenants.

Class A office buildings are newer and offer state-of-the-art amenities, and are typically located in desirable areas. They are the most sought after by businesses looking to provide a positive first impression to clients and customers. Class B office buildings are older but well-maintained, and are less expensive than class A. They don’t have the prestige of a Class A building, but still offer standard features such as rooftop courtyards and cafeterias.

Retail Buildings

As the name suggests, retail buildings are the main component of commercial real estate that serves customers. These include shops, restaurants, coffee houses, hairdressers, undertakers, post offices, pet stores, showrooms, and more. In some countries, this category also includes convenience retail centers (often referred to as strip malls), where small businesses such as 7-Eleven operate.

Retail buildings are crucial to local economies, providing jobs for sales associates and other employees in the building as well as outside. In addition, they support local businesses by serving as a place where customers can interact with suppliers and service providers. They are also important social hubs, helping people connect with each other through community events and promotions.

For investors, retail buildings offer more stability than office spaces as they tend to have longer lease terms and are located in high traffic areas that attract consumers. They are often built with anchor tenants, such as department stores or supermarkets, that help draw in foot traffic and can increase revenue.

While the eCommerce boom has changed how consumers shop, retail space remains an important part of commercial real estate. As the most common type of CRE, it offers a diverse opportunity for investors who can diversify their portfolio with different building types and locations.

As the world becomes more digital, it is critical for businesses to have physical space that can adapt to changing customer needs. That’s why it is important to understand the different types of CRE and how they can impact your business model. With the right information, you can find the perfect space to grow your business and reach your target audience.

Industrial Buildings

When most people think of industrial property, they think of large warehouse buildings containing a long assembly line and massive machinery. While these are possible uses for industrial properties, they are not the only ones. In fact, every product you consume or use from frozen food to toilet paper to building materials has been produced or stored in some kind of industrial building at some point.

The eight most common types of industrial real estate include manufacturing buildings, warehousing and storage, research and development, data centers, light industrial spaces, heavy industrial space, distribution warehouses and showroom-office spaces. Often, industrial spaces offer flexible layouts and can be adapted to many different uses as business needs change from year to year. This flexibility makes them attractive for investors looking for consistent income and high returns on their investments.

Heavy industrial properties are primarily located outside of urban or residential areas and are used for a variety of manufacturing and processing activities. Unlike light industrial properties, they typically have heavy machinery and equipment that requires substantial maintenance to keep in working order. They also have specialized power requirements, high security levels and energy-efficient cooling systems to prevent overheating.

Research and development (R&D) industrial properties house laboratory facilities, offices and light manufacturing space where companies work to develop new products or improve existing ones. These kinds of industrial properties tend to have campus-like qualities, with multiple buildings connected by outdoor walkways and parking lots.

Warehouses and distribution centers are large, mainly one-story buildings that contain large loading docks and clear heights to accommodate big trucks. These are the most popular type of industrial properties because they can be adapted to fit a variety of business purposes, including e-commerce distribution.

Data centers are specialized properties that store the computer servers businesses use to maintain network functionality, operate cloud storage options and handle online transactions. These sites need to be highly secure and reliable to prevent outages that would cost businesses in the millions of dollars in lost revenue. They are also a must for industries like telecommunications and e-commerce, which generate huge amounts of data.


The hospitality real estate sector focuses on properties that cater to travelers and tourists. This includes anything from roadside motels and bed-and-breakfasts to five-star resorts and conference hotels. Like other commercial property types, hotels are considered operating businesses and rely on recurring revenue streams to operate. These revenues often change based on seasonality, travel trends and occupancy. Understanding these cyclical fluctuations is crucial to making sound hospitality real estate investments.

There are three primary types of hotel real estate: budget hotels, mid-market and luxury. While the underlying assets may be the same, these properties are differentiated by their pricing and features. In general, budget hotels offer lower-end amenities and lower occupancies than other properties. Mid-market and luxury hotels are more similar to other real estate types in terms of occupancies and pricing, but they offer higher-end features.

A major factor in determining hotel value is its net operating income (NOI). This figure represents the amount of cash flow that a hotel generates after all expenses, including marketing, utilities and maintenance. NOI is then divided by the current market value of a hotel to determine its cap rate.

While the current economic climate is causing some real estate investment uncertainty, the industry remains resilient. Some forward-thinking hotels are even converting corporate offices into shared workspaces to capitalize on their unused space and bring in new tenants. This type of highest-and-best use is one way to maximize the potential of a property and increase its value.

Compared to other real estate types, hotels have more cyclical occupancy changes than office, retail or industrial buildings. This is largely because most hotels rely on tourist demand, which can be highly volatile.

Investing in hotels requires a thorough analysis of demand drivers and a detailed knowledge of the operating model. It’s also important to understand the different methods for valuing hotels, including the cost approach, sales comparison approach and income capitalization method. A real estate professional with expertise in hospitality operations management and valuation will be able to provide valuable insight into the hotel business and help you make an informed decision about whether it’s a good fit for your investment portfolio.