Commercial spaces are where manufacturing, buying, selling, storage, and even living take place. From apartment buildings to warehouses and hospitals, commercial property enables the function of our economy and culture. Commercial real estate data like occupancy rates, average rents, recent upgrades to the premises, and other information goes into classifying and defining commercial properties. But more than anything, commercial property is defined by its use. And for those who work in commercial real estate (CRE), knowing what is going on at the building up the block informs decision making at your own properties. Let’s explore the concept of commercial real estate by definition, from the law to common experience.
What Is Commercial Real Estate?
Legally, commercial real estate is defined as a building where at least 50% of the floor space is used for commercial activities. Commercial properties are leased to their tenants who then use the spaces to generate revenue themselves. Multifamily apartment buildings containing more than 5 units are also considered commercial property.
What Are The 4 Main Categories of Commercial Real Estate?
The 4 main types of commercial real estate are office, retail, industrial, and multifamily.
- Office: A commercial office space can be any size, from one room to an entire skyscraper.
- Retail: Retail commercial properties can be free-standing or strip centers and shopping malls.
- Industrial: Industrial commercial real estate includes manufacturing facilities and warehouses.
- Multifamily: Multifamily properties include not just apartments, but condos, student housing, and nursing homes as well.
What defines a commercial property under these four categories is how it is used. But there may be a big difference in quality from one supermarket or office space to the next, even within a few miles of each other in the same city. Commercial properties are classified as A, B, or C on the quality spectrum.
Examples of Commercial Property Classes and Types
Class A properties
are brand-new buildings with top-class amenities, meaning they have the highest rents in the market. These are low-risk investments in the most desirable locations for their use case. Examples of class A commercial properties might include mixed-use office and retail near a city center or a multifamily property with cutting-edge security technology and great views.
Class B properties
are still located in desirable areas, but do not have the same luxury amenities or recent renovations as a Class A property. Any number of variables can impact the unique valuation and potential of each property. For instance, a 15 year old office building with good bones could be a great investment or a risk depending on the greater trends in the neighborhood.
Class C properties
are usually more than 20 years old, not recently updated or well-maintained, and are in low-demand locations. Upgrades and improvements have not been made between tenant move-ins, and the façade and landscaping may also be unkempt. High maintenance and involvement from property management may often be needed at these properties. For example, a strip mall where a new roof has been delayed or an office building with no elevators and air conditioning are examples of Class C commercial properties.
Ultimately, commercial property is defined by both its type and its class
Data Helps Define a Commercial Property
It’s important for commercial real estate professionals to be able to get a high-level view of the CRE property data in any given neighborhood. Developers can see if they are planning a project in an area that is already saturated with options. Investors can get a sense of the potential to attract tenants or flip a building for profit based on recent market activity. Financers and lenders can compare the terms of a deal to others and manage risk through timely benchmarking. Even realtors and property managers can make sure the terms and conditions of their leases and the building amenities are keeping up with the competition.
Canyon Data: Cutting Edge Commercial Real Estate Data Providers
Canyon Data was founded to provide commercial real estate professionals with the data they need to make smart, educated decisions. The market can change month-to-month, but CRE data sources aren’t always updated to match. The longer it takes data to become available, the more decisions are made out of context, causing deals to be closed less profitably and projects to be planned without the full scope of the community’s needs in view.
Change is inevitable. At Canyon Data, we’re committed to helping you draw on experience to lead change in the market, not just react to it. Learn more about our CRE data subscription opportunities in Boise, with plans to expand to Portland, Seattle, and Salt Lake City next.