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Types of Commercial Real Estate

Types of Commercial Real Estate

Commercial real estate is considerably different from residential real estate. If you are trying to sell commercial properties you're going to work with buyers who have different goals and interests compared to residential property buyers. You will also encounter a greater variety of types of commercial real estate.

Each type of commercial property has its own audience, benefits, and drawbacks. Learn about the types of property and what to consider when you're trying to sell.

Types of Commercial Real Estate and What to Consider When Selling Each Type

Commercial real estate is any property that can earn a profit, either by being rented out by the owner to other people or by being used for business purposes. There are six major types of commercial buildings. The category a property falls under depends on its use. Knowing the various categories of commercial properties will also help you better understand what you need to do when selling each type.

1. Multifamily

Multifamily properties fall under the commercial real estate umbrella, even though people primarily live in them. The multifamily commercial real estate definition varies, with properties that can range in size from a duplex, with two units, to high-rise apartment or condominium buildings with 100 or more units. Multifamily buildings can also include residences that cater to a particular group of people, such as off-campus student housing or housing for people over the age of 55.

Selling a multifamily building isn't quite the same as selling a single-family home. You need to consider whether the units in the property are currently occupied and whether having tenants would be attractive to a potential buyer. The location of the multifamily property also matters. If it is in an area that's up and coming or in high demand, you're likely to have an easier time selling it compared to trying to sell a property in an area that's in decline.

2. Hospitality Properties

The hospitality property category of commercial real estate might be more varied than you would think. Types of properties include the following.

  • Full-service: A full-service hospitality property offers guests the works, including on-site room service and a restaurant.
  • Limited-service: A limited-service hospitality property most likely doesn't have room service or other on-site amenities, such as a restaurant.
  • Extended-stay: Extended-stay hospitality properties, such as motels or inns, are for travelers who need to remain in a specific area for a while, but not long enough to justify renting an apartment. Usually, extended-stay hospitality properties, offer guests suites with attached kitchens. Room service and an on-site restaurant usually aren't available.
  • Casino: A casino hospitality property has some sort of gaming or entertainment component, such as slot machines or table games.
  • Boutique: Boutique hospitality properties, such as a bed or breakfast, might be limited- or full-service. They are typically small and might be locally owned, rather than part of a chain.
  • Resort: Resort hospitality properties, typically offer guests all the bells and whistles. Not only are there on-site restaurants and room service, but they also tend to have golf courses, amusement parks and other large-scale amenities on the same grounds. A condo can also fall into this category based.

When it comes to selling a hospitality property - whether it's closed or still in business - knowing what category it falls into will benefit you when it comes to knowing how to market it to a potential buyer.

3. Retail

Retail real estate includes stand-alone stores, as well as full shopping malls and strip malls. Buildings that house restaurants also fall under the retail category. When selling retail property, you should think about the type of property it is, such as single-tenant or multi-tenant. It's also worth considering whether you want to sell the property with existing tenants or offer the buyer a vacant property they can rent out as they see fit.

The presence of anchor tenants can be something that makes your property attractive to buyers. Anchor tenants are usually larger, well-known retailers. They can help attract buyers to a property and can also help attract tenants for the smaller spaces around the anchor.

4. Office

Like other types of commercial real estate, the office category divides into subsections, based on the location of the property. Offices located in downtown, urban areas typically fall into the central business district category. Central business district offices in the heart of a big city are usually multi-story high-rises.

The second office category is suburban. Suburban offices are usually mid-rise buildings located outside a city. As with retail buildings, when you're selling an office building, it's worth thinking of the existing tenants. If well-known companies rent space in an office building, that can be a big draw to potential buyers.

5. Industrial

The industrial category of real estate is a broad segment that includes properties such as warehouses, factories, and heavy manufacturing plants. Compared to other types of commercial real estate, industrial properties are usually massive. Depending on their use, they might have special requirements or other restrictions on their sale which limit your buyer pool and require specialized marketing.

6. Special-Purpose

The special-purpose category is a bit of a catch-all for any type of commercial real estate that doesn't fall into the categories mentioned above. For example, a movie theater, amusement park, or hospital might be a special-purpose property.

If you're trying to sell a special-purpose property, it's crucial to find the right buyer. It might be someone interested in renting the property to a tenant or someone who has a business that fits in with the property's purpose, such as someone who owns or wants to begin to operate a movie theater. So it's important with special-purpose property to find the right marketing approach that will effectively reach the buyers looking for that specific property type.

Classes of Commercial Real Estate

Type isn't the only way to separate commercial real estate. Class is another way to divide these assets. The classification system described below is most common for office buildings but it can apply to other types of commercial property, too, such as multifamily properties.

The three classes of property in commercial real estate are as follows.

  • Class A: Buildings in Class A are the cream of the crop. Those buildings can be in the most in-demand areas, have the most amenities, and be the most up to date. If you're selling Class A commercial real estate, you can expect to get top dollar for it.
  • Class B: Class B commercial real estate might not be as new as Class A buildings, but they are still in pretty good shape. They're likely to have fewer amenities compared to Class A and are usually a good option for buyers who are looking to update or perform renovations.
  • Class C: Class C commercial properties are usually older, often over 20 years old, and in need of considerable maintenance and repairs. They are often in areas that aren't very popular or a bit off the beaten path. If you have a Class C building to sell, you might not get as much for it as a Class A property, but it can still be a good investment for the right buyer.

Tranzon Can Help You Sell Your Commercial Real Estate

No matter what type of commercial real estate you own, if you want to sell it, you also want to get the most from the sale and most likely want the sale to happen quickly and to go smoothly. For more than 20 years, Tranzon has been working with sellers to help them sell property in the shortest possible time, for the highest possible price. To learn more about our methods and how we can help you, request a free property evaluation today.

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