What Is Commercial Real Estate?

Commercial real estate encompasses a wide range of property types, including

warehouses, shopping malls and office buildings. It also includes land and

specialized property such as hotels and resorts. The industry touches virtually every

aspect of life in the United States and many other countries. Companies can’t

operate without commercial space, patients can’t receive treatment at hospitals and

shoppers can’t shop at Walmart without a building. This vast industry has numerous

players, from individual investors to large institutional investors like pension funds,

insurance companies and sovereign wealth funds.

Investors in commercial real estate can buy and hold properties directly, but this

requires significant capital and the ability to manage the asset. Those with less

capital can invest indirectly by purchasing shares of a publicly traded Real Estate

Investment Trust (REIT), which offers diversification in the stock market and

provides access to an income stream from rents. Alternatively, accredited investors

can partner with a private equity firm to acquire an interest in a specific commercial

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A commercial real estate broker acts as an advocate for clients seeking to sell or

lease a commercial property. They can work independently or for a brokerage firm.

Those seeking to become brokers can pursue certification through courses offered

by the National Association of Realtors and the Real Estate Institute. Those

interested in buying or leasing a commercial property can find an agent or broker

through an online search or by contacting their local real estate broker’s association.

As a general rule, commercial property is more costly to own than residential real

estate. Typical costs include materials, compliance standards, overhead and labor.

Additionally, it is typically more difficult to finance commercial properties as lenders

view them as riskier investments. Consequently, commercial property loans typically

have higher interest rates and shorter loan term lengths than residential loans.

Investing in commercial real estate can offer higher returns than investing in the

stock market, but it comes with its own set of risks. In addition to market volatility,

commercial properties can be affected by inflation, unemployment and government

regulations. Additionally, commercial properties can require a larger down payment

and have more complex leases than residential properties.

The eight types of commercial property are office, retail, industrial, hotel,

multifamily, special purpose and vacant land. Each type has its own operational

quirks and risk profile, and investors can choose to focus on one or more of these


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