Types of Commercial Real Estate
There are three main classifications of real estate Residential, Land, and Commercial. Each of these types has multiple sub types or categories. Depending on where you look, you can find a variety of definitions for each of these types, which is quite confusing. To further complicate matters, each source may have a different list of sub types as well.
Residential Real Estate
Residential real estate can be defined simply as property developed for people to live in. By that definition, residential real estate includes single family owner occupied homes, owner occupied townhouses, and owner occupied condos. But also by that definition, residential real estate includes vacation rentals, fix and flip investment homes, and rental homes. For the purposes of this article, if the location is the primary address of the owner, then that is residential real estate. Otherwise, it is commercial real estate.
Land Real Estate
Similarly, land can be classified differently based on its purpose. Land includes vacant land, land used for farming, land for mining, and land for any other purpose. If the purpose of the land currently is or will eventually be to make money, then that real estate is technically land real estate.
Commercial Real Estate
Commercial real estate is a general term that refers to the ownership of buildings or land that is used to conduct business or generate income. Commercial real estate has a variety of sub categories.
Office
Office buildings are generally categorized as urban and suburban, depending on their location and size. Urban offices can also be identified as “CBD” if they are in a central business district. Suburban offices are often grouped together into a small office park or complex. An office building can even be an older home that has been converted to a single tenant office, such as a lawyer or therapist. Medical offices are a specialty sub sector that is frequently separated due to its unique characteristics and needs. Offices are also ranked in three tiers: Class A (the best), Class B, and Class C.
Retail
Retail properties house stores and restaurants and other service industries. Retail properties are primarily classified based on their square foot size, with additional consideration given to whether or not there is an “anchor” (one main store). At the largest end there are the malls, followed by lifestyle centers (otherwise known as malls without roofs or open air malls), then factory outlets (aka outlet malls), power centers (think of a strip of stores with a large store like Home Depot and/or Best Buy in it), community centers (commonly referred to as strip mall), neighborhood centers, convenience centers, and other small plazas (like stand-alone boutique stores, gas stations, and more).
Industrial
Industrial real estate is any land and/or building that is used for industrial activities, such as production, manufacturing, warehousing, storage, assembly, and distribution. Similar to offices, industrial real estate has an alphabetic rating system that distinguishes the best/nicest buildings (class A) from those that need the most TLC (class C and below). When people think of industrial, they often think of warehouses, but that’s just the tip of the iceberg. Industrial properties also include industrial business parks, data centers, show rooms, R&D complexes, and truck terminals.
Multifamily
The multifamily sector of commercial real estate includes all types of residential real estate outside of single family homes. Similar to office and industrial properties, multifamily properties are rated alphabetically, with class A being the best/most desirable. Apartment buildings are further defined based on their characteristics, including high-rise, mid-rise, garden style, and walk-up. There are specialty multifamily properties, including student housing, senior housing, and subsidized/low income housing. Mobile home parks are another type of multifamily property.
Hotel/Motel
This sector is also called the “hospitality” sector, since it includes establishments that provide lodging, meals, and other such accommodations to travelers and tourists. The properties in this sector are further categorized based on the level of service they provide, from full service hotels to budget hotels. Short term rentals such as Airbnb and VRBO are included in this sector, even though they are single family residential homes, since those homes are investments.
Mixed Use
Mixed use buildings are a single property that combines any of the afore-mentioned categories into one building. The most common are buildings with retail on the first floor and apartments on the upper floors, as commonly found in the large cities.
Special Purpose/Other Commercial
These properties may look like they should fall into one of the categories above, but either due to their popularity or uniqueness they are considered separately. Examples of special purpose properties include self-storage buildings, churches, hospitals, marinas, amusement parks, zoos, parking garages, parking lots, casinos, and stadiums.