This article clearly describes the details about what Commercial real estate is. It discusses the types and challenges faced by this sector. Commercial real estate has its pros and cons. It also explains the role of technology in the growth of the business.
The real estate comprises of two categories of properties- residential property and commercial property. The residential property is solely used for people to live on. The commercial property is used for business purposes. Even the multi-family apartments are considered as commercial property because it is used for generating income by the landlord. Putting a residential property on rent attracts an extra tax will be imposed upon him by the Corporation. It is a broad category of real estate which includes everything from a single store-front to a big shopping centre. The commercial property can be divided into mainly five types: office space, retail, and leisure, healthcare, and multi-family apartments/rentals. All of them have a different purpose and function.
Let’s explain the main types of commercial property available in the commercial real estate:
Office space: Office Space can be further classified into Class A, B, and C. This classification is relative and generally depends on the location and market value of the property.
- In Class A, the buildings are in the best-maintained form.
- In Class B, the location of the property is less desirable while the building is of high quality.
- In Class C, both the construction of the building and the location is undesirable or not up to the mark.
The demand for office spaces has remarkably increased in today’s time. With the growing population, it is difficult to find a desired commercial property to set up an office space.
These office buildings are either in the city or in suburban areas. The office spaces are either owned or leased. Usually, many investors buy a commercial property and give it on lease for the functioning of multi-business purposes. They then collect the rental income from each business. The majority of people choose to opt for office spaces that are available for rent. As a Class A property is not easily available in the city.
- Retail
The retail commercial property includes retail stores, shopping centres, regional and outlet malls, and other shops. The retail and industrial are both considered as commercial property. The industrial property is the light or medium zoned area, where the actual manufacture of products takes place. This includes warehouses, factories, garages and distribution centres, etc. On the other hand, retail property is the commercially zoned area where the selling of the manufactured product is taken place.
- Leisure
It is the most diverse industry in commercial real estate. From exclusive high-end restaurants to amazing amusement parks, is a flourishing business investment. Hotels and restaurants are a growing industry giving a boost to the market value of these commercial properties. It is a broad industry comprising of night clubs, bars, movie theatres, and pubs taking the leisure service industry a notch up. It also covers properties like sports facilities, gyms, and other leisure clubs. They also employ a large population.
- Healthcare
Healthcare real estate is a fast-growing industry in the world. As the ageing population of the world requires more medical attention, the healthcare requirements in the entire world keep on increasing. These real estate properties are given on lease within the healthcare community. A well-equipped and maintained healthcare property is high in demand. Even when the economy of the country declines, the healthcare requirements continue to rise.
- Multi-family rentals
People who look for a smooth and steady flow of monthly income choose to invest in multi-family rentals. It is going to investment strategy between the residential and commercial property. It is a multi-unit building or complex which can accommodate multi-families, leading to strong cash flow every month. Multi-family rentals are considered a less risky investment and thus many investors have taken to this path of commercial real estate business to stay secure. It is the quickest way to grow one’s rental property portfolio.
Every industry has its ups and downs, therefore, you need to keep in mind the advantages and disadvantages of this industry before investing.
Advantages:
- It is more financially rewarding to invest in a commercial real estate than in residential property. It has consistent and regular returns.
- Maintenance of the infrastructure boosts business and the value of the commercial property.
- Tax benefits- A standard deduction at the rate of 30% is allowed for repairs, electricity, etc.
- Have small risks- Investing in multiple buildings, reduces the risk. As the market goes through ups and downs, it is wiser and safer to invest in different businesses.
Disadvantages:
- Big investment in the initial stage. The acquisition of commercial property requires a lump sum amount of money as a deposit in the initial stage.
- Professional assistance is required. For proper planning and furnishing the property, both the interior and exterior of the building needs the advice of a professional f.
- Loans available at a higher interest rate. Unlike, residential property, the loan for commercial property is offered at a higher rate of interest.
- Complex buying process. Investment on a commercial property requires a great deal of background research and document inspection. It is a crucial decision involving huge investment; thus, every aspect of the property needs to be known before buying the property.
There is also special-purpose property at a high demand at present. It is a property that cannot be used for any other purpose in place of the original intended purpose. It has limited use and needs a special permit issued by the appropriate government authority. The ordinary zoning laws have no authority to regulate this type of property. The mines, museums, mills, cemetery, municipality and oil wells, etc, are a few examples of special-purpose property. It cannot be easily converted into any type of property without the permission of the appropriate authority. It is also known as a special-design property.
Commercial real estate is a diverse industry and offers many opportunities for every small and big business organizations. Since the preferences of the office occupiers have changed with time the commercial real state has adapted to the changing trends of the market. The rise in demand for co-working spaces has taken over the traditional form of leasing. People need more flexible and collaborative providers who aim for a stress-free workplace. Synergy has become an essential element of the work culture. Thus, the commercial industry has advanced in its approach. To better understand the concept of commercial real estate, you should take a look at this Youtube video,
Also read : Virtual Property: A Smart Commercial Real estate Investment
