There are many types of buildings for commercial real estate investing. Commercial real estate (CRE) appeals to many investors due to its often consistent returns, passive income, and growth potential. While CRE is popular and typically profitable, knowing what to invest in and how significantly increases investors’ profitability chances. As an investor, familiarize yourself with common pitfalls, mistakes, and risks to maximize your ROI as well as prepare yourself for them. Read on to discover top building types for investing in commercial real estate.
Office space is the most common type of commercial real estate. Buildings like this range from single-tenant offices to massive skyscrapers. Therefore, they’re divided into three classes: A, B, and C. Class A buildings are usually newly built or renovated extensively. They are in great locations with easy access to many major amenities. Typically, these buildings are managed by professional property management companies. Class B buildings are often older and require some investment. Usually, these investments are for minor repairs and upgrades. Class C buildings tend to be used for large redevelopment operations, as they might be located in bad areas, and require significant capital investments. Their infrastructure is often outdated and their vacancy rates are usually high. Surely, buying office space provides a common form of commercial real estate investment that’s flexible to your specific needs.
Retail spaces are another common commercial real estate investment, occupied by businesses that sell products or services. These can range from standalone stores and restaurants to massive malls and shopping centers. For example, a community retail center is often 150,000-350,000 sq feet and occupied by a range of big-box retailers. Smaller stores and businesses fill the gaps between the retail giants. This way, the smaller businesses often entice big-box shoppers. Alternatively, a retail outparcel is a single-tenant piece of real estate typically found in front of large shopping centers or on high-traffic corners. Usually, outparcels host restaurants or pharmacies. Absolutely, retail spaces provide versatile spaces for businesses that garner significant amounts or revenue.
Industrial real estate is typically used for industrial operations such as manufacturing and warehouses. You can invest in oil refineries and pharmaceutical research/development facilities as well. This type of property is often located away from more desirable retail or residential locations. Additionally, industrial properties are subject to various zoning rules and guidelines applying to their business operations. Typically, lease agreements for industrial real estate last at least five years. Certainly, industrial operations real estate provides guaranteed income in less desirable locations for at least five years.
Commercial Multifamily Dwellings
Commercial multifamily dwellings such as apartments are another great type of real estate to invest in. Apartments are typically separated into two classes: residential multifamily and commercial multifamily. Commercial loans finance commercial multifamily dwellings. Landlords often differentiate between small and large commercial multifamily dwellings, based on their size and need to hire onsite staff. For example, in an urban setting, a large dwelling would be about 40 to 50 units. However, cap rates for multifamily dwellings have been compressed in recent years due to various financial crises. These assets require significant initial investments, as a result. Definitely, commercial multifamily dwellings provide significant passive income, but require a significant initial investment.
Data centers are a type of commercial real estate enjoying massive increases in demand as digital data becomes increasingly critical. With more companies transitioning to business cloud computing than ever before, data centers have become imperative for storing their data. In fact, several cloud infrastructure providers predict that new data centers will be needed in hundreds of regions to keep up with the increasing demand. The International Data Corporation reports that public cloud spending will double from $229 billion in 2019 to almost $500 billion by 2023. Most of this investment will be spent on building new data centers. These investments combined with the shift to cloud computing provide a golden opportunity for those looking to invest in commercial data centers. Of course, data centers are a great investment opportunity due to the incredibly high demand for them.
There is a myriad of types of commercial real estate to invest in. Office buildings provide flexibility, allowing you to tailor your investments to your specific needs. Retail spaces offer versatile spaces fro significant revenue-garnering businesses. Industrial operations and spaces provide guaranteed income for at least five years in less desirable locations. Multifamily dwellings often require large initial investments, but generate significant passive income. Finally, data centers provide an incredibly profitable investment opportunity due to their increasing demand. When wondering about the types of commercial real estate to invest in, consider the types described above.