What Is Commercial Real Estate (CRE)?
Commercial real estate (CRE) is property that is used exclusively for business-related purposes or to provide a workspace rather than as a living space, which would instead constitute residential real estate. Most often, commercial real estate is leased to tenants to conduct income-generating activities. This broad category of real estate can include everything from from a single storefront to a huge shopping center.
Commercial real estate includes several categories, such as retailers of all kinds, office space, hotels & resorts, strip malls, restaurants, and healthcare facilities.
KEY TAKEAWAYS
- Commercial real estate refers to properties used specifically for business or income-generating purposes.
- The four main classes of commercial real estate include: office space; industrial; multi-family rentals; and retail.
- Commercial real estate provides rental income as well as the potential some capital appreciation for investors.
- Investing in commercial real estate usually requires more sophistication and larger amounts of capital from investors than does residential real estate.
- Publicly traded real estate investment trusts (REITs) are a feasible way for individuals to indirectly invest in commercial real estate.
The Basics of Commercial Real Estate
Commercial real estate along with residential real estate comprise the two primary categories of real estate property. Residential properties include structures reserved for human habitation and not for commercial or industrial use. As its name implies, commercial real estate is used in commerce, and multi-unit rental properties that serve as residences for tenants are classified as commercial activity for the landlord.
Commercial real estate is typically categorized into four classes, depending on function:
- office space;
- industrial use;
- multi-family rental; and
- retail.
Individual categories may also be further classified. Office space, for example, is often characterized as class A, class B or class C.
Class A represents the best buildings in terms of aesthetics, age, quality of infrastructure, and location.
Class B buildings are usually older and not as competitive—price-wise—as Class A buildings. Investors often target these buildings for restoration.
Class C buildings are the oldest, usually over 20 years of age, located in less attractive areas, and need for maintenance.
Note that some zoning and licensing authorities further break out industrial properties—sites used for the manufacture and production of goods, especially heavy goods—but most consider it a subset of commercial real estate.
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