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
categories.
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