“Getting To Know The Types Of Commercial Property” written by Mike Marko
Do you know all the different types of commercial property?
As a property manager, you should have basic knowledge about a commercial property. A commercial property can include buildings or land which are commonly used to generate a profit, either from capital gain or rental income. Knowing the different types of commercial property will give you a better idea of what properties can you own or manage and can be used to generate profit.
So let’s start talking about the different types of commercial property.
Types Of Commercial Property
Commercial property is properties that are zoned and coded via building codes for business or commercial uses. Commercial properties vary specifically in use from residential properties since they are built solely for business use.
Commercial properties, due to their zoning and designations, can only be used for business development and varied business uses. A commercial property can be commonly classified into several different categories: office buildings, industrial buildings, retail buildings or centers, apartment buildings, and hotels.
Commercial properties are classified into specific types of buildings where owners of the properties are zoned by city planners to charge rents and conduct business and produce taxable income for cities and areas where they are built.
Here is the breakdown of classifications for commercial buildings…
1. Office Buildings
Office buildings are building built and zoned to house businesses and to conduct business. Office buildings generally fall into two types of categories: urban or suburban. You can usually find urban office buildings in cities and these types of buildings may include skyscrapers and other high-rise properties. Urban office buildings can vary in size, and some may be as big as a few million square feet.
On the other hand, suburban office buildings are commonly smaller in size compared to urban buildings. Suburban office buildings are built in neighborhoods and are able to spread out and be built for convenience and usability. Suburban office buildings are often times grouped in office parks housing medical practices, corporate offices, and other types of commercial businesses.
An additional breakdown in the way office buildings are planned and constructed is that they oftentimes built to be a single tenant, or can be built and planned to be multi-tenanted structures.
Office buildings zoning codes are classified into three ranked tiers- Class A, Class B, or Class C. The difference among the three zoned ranks of office buildings are as follows:
- Class A
Class A buildings are considered the best of the best when it comes to its construction and location. These buildings have high-quality standard finishes, state-of-the-art systems, exceptional accessibility and a definite market presence. These prominent buildings compete for premier office users with rents which are above average for the area. Class A buildings can commonly charge and make the highest rents and usage fees due to their desirability and locations.
- Class B
Class B buildings have high-quality construction, but it has a less desirable location. These buildings have fair to good finishes and satisfactory systems. Buildings in this rank compete for a wide range of users with rents in the average range for the area.
- Class C:
Class C is built according to local and State construction standards but tend to be less flashy and are not considered high-end locations or appearance. They do have excellent functionality and these types of buildings compete for tenants requiring functional space at rents below the average for the area.
Another classification for commercial buildings and construction is building built specifically for industrial uses. These types of commercial buildings are built specifically and to specification to house industrial operations and industrial type businesses. These types of buildings are usually found outside of urban areas and are commonly located close to major transportation hubs and along major transportation routes. The low-rise buildings can also be grouped into industrial parks.
Industrial buildings are classified into four types:
- Heavy manufacturing
Most large manufacturer industrial buildings fall under this type. This category of an industrial building is for special use. The building is built specifically and heavily customized with machinery for the end user. It usually has to undergo a significant renovation to be used by the next tenant.
- Light assembly
This type of industrial building is much simpler compared to the heavy manufacturing type of industrial building. It can also be easily reconfigured. Buildings of this type are normally used for storage, product assembly, and office space.
- Bulk warehouse
This type of industrial buildings is very large in size. This type of building usually measures from 50,000 – 1,000,000 square feet. Bulk warehouses are usually used for regional distribution of products and require easy access by trucks entering and exiting highway systems.
- Flex Industrial
Flex industrial buildings can be easily converted and usually include a mix of both industrial and office space.
Retail and restaurant types of commercial buildings are some of the most common types of commercial structures built because of the high demand for them. Retail includes properties that belong to retailers and restaurants that are built to service the demand for food and retail products. Their designs are often tailored for people to want to hang out at. These buildings can be multi-tenanted, or single-use, stand-alone building. This type of retail building falls into different types:
- Strip Center
Strip centers are smaller retail properties which may or may not have anchor tenants. An anchor tenant is a larger retail tenant which usually serves to draw customers into the property. Good examples of anchor tenants include Wal-Mart, Publix, or Home Depot or a Bank that has construction costs and long-term leases signed. Strip Centers usually has a mix of small retail stores like Chinese restaurants, dry cleaners, nails salons, and the like.
- Community Retail Center
Community retail centers usually measure from 150,000-350,000 square feet. Several anchors are present in community centers, like grocery stores and drug stores. Furthermore, it is only normal to find one or more restaurants in a community retail center.
- Power Center
Several smaller inline retail stores can be found in a power center. A power center can be identified by the presence of a few major box retailers, such as Wal-Mart, Lowers, Stapes, and Best Buy. Every big box retailer normally occupies between 30,000-200,000 square feet, and these retail centers usually also have a number of out parcels type businesses as well.
- Regional Mall
Malls normally measure from 400,000-2,000,000 square feet and usually have many anchor tenants like department stores or big box retailers such as Barnes & Noble or Best Buy. they are built to be community centers and places where large amounts of people can shop and congregate.
- Out Parcel
Many larger retail centers can be found to have one or more out parcels. Out parcels are parcels of land set aside for individual tenants like fast-food restaurant or banks.
The main type of commercial building that is used specifically for making rental income and producing taxable income for cities is building built to house rental units and rental tenants. The multifamily sector type buildings fall into different types of a residential real estate that do not belong in single-family. Examples of multifamily properties are apartments, condos, co-ops, and townhomes.
Multifamily properties are classified into Class A, Class B, and Class C just like office buildings.
Apartment rental buildings can be classified into different property types such as:
High-rise apartments are located in larger markets and it usually has more than 100 units. These apartments are composed of nine or more floors, with at least one elevator. This type of apartments is professionally managed.
This type is a multistory apartment which has an elevator and is commonly located in urban infill locations. Mid-rise apartments are normally composed of 5-9 floors with between 30-110 units.
Garden-style apartments began to emerge during the 1960s and 1970s when younger people moved from urban centers to the suburbs. These type of apartments can have 1 to 3 floors with 50-400 units, and may or may not have elevators. This type of apartments is developed in a garden-like setting which may be located in a suburban, rural, or urban area.
This type is an apartment with 4-6 floors which doesn’t have an elevator.
- Manufactured housing community
A community where an operator leases ground sites to owners of manufactured homes.
- Special-purpose housing
This type is a multifamily property that could be in any style that is customized to target a specific population segment, such as student housing, seniors housing, and subsidized housing.
The hotel sector types of commercial buildings include buildings or properties that offer accommodations, meals, and other services for travelers and tourists. Hotels may be independent or flagged. When a hotel is flagged, it means that the hotel is part of a big hotel chain.
Hotels are classified into several categories, which include:
This type of hotel has no room service, on-site restaurant, or concierge. These hotels are smaller than the usual.
Full-service hotels provide room service and it also has an on-site restaurant. This type of hotels is normally found in central business districts or tourist areas.
This type of hotels is usually found in an urban or resort area. These hotels can offer full-service and have fewer rooms. Additionally, these hotels are independent or not part of a national chain.
Casinos can offer a gaming component, such as video poker or slot machines.
These type of hotels offer larger rooms, small but fully-equipped kitchens in guest rooms and larger rooms. These type of hotels are built for people who would like to stay for more than a week.
This type is a full-service hotel located in a large amount of land, in a usual resort location. It can also offer an attached golf course, water park, or even an amusement facility.
6. Special Purpose
We’ve already discussed the common types of commercial property. However, there are still a lot of types of commercial properties that are built and owned by investors for their own interest and use. Examples of special-purpose commercial properties may include:
- theme parks
- bowling alleys
- car washes
- funeral homes
- nursing homes
Final Thoughts On Different Types of Commercial Property
There are a lot of types of commercial property. Now that we discussed all of it, you now have an idea what are other properties you can manage or own, and use to generate income. If you are interested in managing or owning other types of commercial property, then you start adding to your portfolio today.
If you have any questions or thoughts, feel free to add them below.
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