What Is Commercial Real Estate?

Per the National Association of Realtors...

Commercial real estate is defined as “any multifamily residential, office, industrial, or retail property that can be bought or sold in a real estate market.” This might seem straightforward, but there are a few additional intricacies to the commercial real estate market that differentiate it from the homeowner’s market.

While it’s easy to identify a commercial real estate property that’s used as an office building, by definition, commercial real estate is any building or property that houses one or more retail businesses where the general public can go to purchase goods or services. There are also industrial commercial real estate properties that usually fall into the categories of distribution center, manufacturing facilities, or warehouses. And it includes specialty commercial real estate properties that may function as medical, office building, self-storage, five-plus unit apartments, hotels, motels, senior centers, golf courses, resorts, and more.

Commercial real estate can also be broken down into one of two categories:

• Owner occupied commercial properties and commercial investment properties.

Owner occupied commercial real estate is just what you would probably assume it to be. It is a building that may house offices or some other type of business, such as manufacturing, and the building is owned by the main or primary tenant in the building. The reason we use the term “primary tenant” is that sometimes a company or business may buy a property, such as a large office building, and utilize most of the space in the building for their own purposes while renting out small sections of the building to other companies. In this case, the owner owns the entire building and is considered the primary tenant as well. 

• Non-owner occupied commercial properties and commercial investment properties.

These are any commercial building not occupied by the owner. Offices, apartments, industrial, retail, and other commercial properties fall into this category.

Aren’t Residential and Commercial Real Estate the Same Thing?

The short answer to that question is “no.” Residential real estate can be considered as real estate that provides domiciles or places for people to live. Commercial real estate involves any property that is purchased with the intent of making money through leasing the property to someone else or occupied by the owner. And, to clear up one point that confuses some people, there can be properties that people live in and are considered commercial real estate. An example of this would be a large apartment complex. But, by definition, a property such as a duplex, triplex, or a fourplex is not commercial real estate, even though the owner would be making money from leasing or renting the duplex, triplex, or fourplex units. The reason is that single family homes and small residential spaces up to four units have the same type of noncommercial real estate loans, called conforming loans. Residential with units of five or more, such as apartments, require a commercial loan, and as such are deemed commercial real estate.

Commercial real estate covers a lot of territory because it is ultimately the driving force behind a vibrant economy in many nations throughout the world.

I hope you found this blog post enlightening and that it has given you a clearer understanding of what commercial real estate is all about. But don't stop here! There's so much more to learn and explore.

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