Many people come to us with the question, “What is commercial real estate?” Often, the people who ask this question are interested in this industry because they want to grow their investment portfolio.
If you’re looking to venture into the world of commercial real estate, knowing what it means and how it can help you grow your business is a good idea. This article will explain a bit more about the industry and how you can find success.
What is Commercial Real Estate?
Investopedia defines commercial real estate (CRE) as “property used exclusively for business-related purposes or to provide a workspace rather than a living space…Most often, commercial real estate is leased to tenants to conduct income-generating activities.”
Commercial real estate can be broken down into several subcategories, which typically are defined by the type of tenant who will occupy the space. The four main types of commercial real estate are:
Office Buildings
Office spaces typically offer larger floor plans than retail properties and may include amenities such as conference rooms, onsite cafeterias, and fitness centers. Office spaces are ideal for companies that need to house large numbers of employees under one roof or require specialized space for meetings or training sessions.
There are three subtypes of office space:
- Class A. These are the best buildings in the office space sector. These buildings rank highly in aesthetics, age, quality of infrastructure, and location.
- Class B. This commercial real estate investment is typically for business owners who want to restore an office building and turn it into a profitable property.
- Class C. These buildings are the oldest (typically 20+ years old), need significant restoration, and are located in undesirable areas.
Retail Spaces
Retail spaces are used by companies that sell products directly to consumers or directly to other businesses. This type of commercial property can range from boutiques with small floor plans to large department stores, making this a good option for investors with any size budget.
Industrial Properties
Industrial properties are often located on large parcels of land with easy access to highways or rail lines. These properties are designed specifically for companies in the manufacturing industry who need lots of space to build equipment or store inventory, but don’t need much else besides power and sewer hookups.
Commercial Real Estate Investment
Commercial real estate investment can be a very lucrative career. There are two ways to make money in CRE:
Direct Investment
When you invest directly in commercial real estate, you purchase a specific piece of property and then reap the benefits. You can own all or part of the building and have control over how it is managed or leased. You can also rent it out yourself or have an agent handle the process for you.
Commercial real estate can be purchased from private owners, banks, or other investors. In some cases, an investment bank buys up large portfolios of properties and sells them to investors. These may be individual pieces (i.e., one retail store) or larger packages (i.e., an entire strip mall).
In other cases, private investors may pool their money together to buy a single building or several buildings at once (known as syndication).
Indirect Investment
Indirect investment in commercial real estate is when you invest through a type of market security, like a real estate investment trust (REIT) or exchange-traded fund (ETF). An indirect investor typically doesn’t deal with the property owner or tenant. Instead, they buy shares of ownership in a company that owns commercial real estate assets across many different locations. The company then pays a portion of its net income based on your ownership share.
Indirect investments are a good way for investors to get exposure to real estate without taking the time and effort to learn about property management or investing in individual properties.
How to Find Commercial Property
There are several ways to find commercial property for sale. Here are the most common methods used by real estate investors and professionals:
Local Publications
Local newspapers and magazines often have articles about new developments and available properties. If you’re looking for a particular type of business space — such as retail or industrial— seek local publications that cover those topics, specifically.
Commercial Real Estate Brokerages
Most cities, especially metro areas, have organizations that specialize in commercial real estate services. Here in Jackson, MS, Speed Commercial Real Estate helps investors with everything from finding the best property, asset management, investment sales, property owner representation, and more.
Speed Commercial Real Estate
Speed Commercial Real Estate is proud to work with real estate investors in Jackson and throughout Mississippi. Our experienced professionals apply market knowledge, cutting-edge technology, and industry expertise to each venture. We strive to keep our clients front and center, which allows us to stay focused on your goals and exceed your expectations.
When you’re ready to invest in commercial property, contact us at Speed Commercial Real Estate. We will walk you through the investment process, explain the nuances of the industry, and help you maximize the return on your investment.