Can You Explain What Commercial Real Estate Is?


Commercial real estate refers to non-residential properties that generate income by being leased for business purposes. This category of property encompasses everything from a single storefront to huge shopping malls and even warehouses. However, it does not include apartment complexes or multi-family residential rental properties that contain five or more units, which would fall under the umbrella of residential real estate (homes and condominiums).

Commercial real estate, also referred to as CRE, is often much more expensive than its residential counterpart but has the potential for higher rates of return. The reason is that you can generally work directly with business owners rather than individuals who are simply renting for living purposes, and businesses tend to have a greater ability to adhere to lease terms and pay rent reliably.

Most investors who buy and manage commercial real estate do so to make money by leasing the space to other businesses. This is why a commercial broker who specializes in your specific property type is critical to the success of your transaction. A broker can help you find the right location with ample foot traffic and access to highways or waterways, provide you with detailed demographic and market data, and complete in-depth financial analyses of the property before you invest. Also read


The different types of commercial real estate include office buildings, retail spaces like malls and strip centers, industrial properties that are used for manufacturing or distribution, and warehouses. Miscellaneous categories include flex spaces that mix industrial and office use, and land that is either raw and undeveloped or in the process of being built on.

Unlike residential real estate, which only includes houses and other one- to four-unit rental residences, all commercial properties are owned by investors who lease the space out to tenants for business purposes. This is typically done on a long-term basis, with commercial leases lasting from five to 10 years or more, as opposed to residential rental property leases which are usually on a yearly or month-to-month basis.

Many people invest in commercial real estate because they see it as a secure way to diversify their investment portfolio. While all investments carry some risk, commercial real estate has the advantage of being able to withstand economic downturns better than other assets because it tends to house stable, reliable tenants like government offices and hospitals.


Some investors purchase and manage commercial properties on their own, but others may choose to invest in a commercial real estate fund. These funds are a group of investors who pool their money to buy and manage a portfolio of commercial properties. They are often governed by an experienced fund manager who analyzes the market, makes recommendations on asset acquisition and divestment, and provides oversight to ensure that the fund is meeting its objectives. Some of these funds are backed by banks, while others are not. Investors in commercial funds are typically high net-worth individuals who have a significant amount of capital to invest.

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