Commercial Real Estate Property Types
Last Updated on April 11, 2024 by Morgan Beard
Commercial real estate is where we work, live, play, and connect.. There are a range of commercial real estate property types that exist and serve various purposes. So, whether you are an occupier looking for the perfect space or a tenant-rep broker supporting commercial tenants — knowing the distinct characteristics and nuances of each property type is critical.
In this article, we will explore the six primary commercial real estate property types: office, retail, industrial, multifamily, hospitality, and special purpose. As a real estate asset class, each of these property types has a unique use case and this blog provides you with an in-depth understanding of the attributes, subcategories, and investment opportunities associated with each. In addition to this post, brushing up on commercial real estate lease types like triple net lease, gross leases, variable leases, is helpful. Let’s dive in:
Office Properties: Where Business Meets Productivity
Office properties serve as the epicenter of productivity, housing businesses of all sizes and industries. From corporate headquarters to shared coworking spaces, the office property type offers a range of options to cater to diverse occupant needs.
Within the office property type, subcategories can vary based on several factors, including location, class, and design. Understanding the distinctions between office building classes: Class A, B, and C office spaces, as well as the impact of location on property value, can significantly inform decision-making processes for commercial occupiers.
Class A
Class A office properties are typically located in prime business districts or affluent areas. They offer convenient access to transportation hubs, amenities, and upscale dining and entertainment options. These buildings boast modern architecture, cutting-edge technology, and high-quality finishes throughout. More often than not, they feature amenities such as fitness centers, conference facilities, on-site management, and premium security systems. Class A properties command the highest rents in their respective markets, attracting blue-chip corporations, financial institutions, and other high-profile tenants seeking top-tier office space to project a professional image.
Class B
Class B office properties offer a balance between quality and affordability, appealing to a broader range of tenants. While not as prestigious as Class A buildings, Class B offices still provide functional and well-maintained spaces suitable for a variety of businesses. These properties may feature a mix of modern and older design elements, with standard amenities such as elevators, parking facilities, and basic security measures. They are typically located in secondary business districts or suburban areas, offering convenient access to local amenities and transportation routes. Class B office rents are lower than Class A, making them attractive to small to mid-size businesses, startups, and organizations seeking a professional workspace without the premium price tag.
Class C
Class C office properties are the most affordable option, characterized by older buildings with fewer amenities and less desirable locations. These properties may require renovation or refurbishment to meet modern standards, but they offer the opportunity for investors to acquire assets at lower acquisition costs. Class C offices are often situated in peripheral or less affluent areas, away from the central business districts. While they may lack the luxury and amenities of Class A and B buildings, Class C properties still provide functional office space at competitive rental rates. They are suitable for budget-conscious tenants, who are looking to minimize occupancy costs.
As the nature of work continues to evolve, with remote work and flexible office solutions gaining popularity, understanding the evolving trends within the office property type is crucial to building out an office strategy. Read our blog on Corporate Real Estate Strategy to go deeper on this topic.
Retail Properties: The World of Shopping and Dining
Retail properties encompass a wide range of spaces, from bustling shopping malls to neighborhood strip centers, and mixed use community hubs. The retail property type is a hot one right now, with Colliers research finding that 50% of retailers are expanding their real estate footprint from 2024 – 2030.
Within the retail property type, different subcategories exist, including enclosed malls, power centers, lifestyle centers, mixed use and neighborhood centers. Each subcategory offers unique features and benefits, catering to different retail segments.
As the retail sector becomes more competitive, many retailers are racing to create immersive experiences that entice customers and drive foot traffic to brick-and-mortar stores. More and more retailers are testing experiential marketing strategies, pop-up stores, and curated events to create memorable moments for customers beyond traditional transactions. Moreover, retailers are prioritizing the integration of online and offline channels to provide seamless omnichannel experiences, allowing customers to research, purchase, and engage with products both in-store and online.
Shopping Malls
Shopping malls are large retail complexes that house a diverse range of stores, dining options, entertainment venues, and services under one roof. They often feature anchor tenants such as department stores or big-box retailers, surrounded by smaller inline shops and kiosks. Malls typically offer amenities like food courts, cinemas, play areas, and ample parking to attract shoppers and encourage longer stays. This traditional type of retail space is being replaced by lifestyle centers and mixed use retail environments.
Lifestyle Centers
Lifestyle centers are open-air retail destinations designed to evoke a sense of community and upscale leisure. They feature a mix of specialty shops, boutiques, upscale dining options, and outdoor spaces for socializing and events. Unlike traditional malls, lifestyle centers prioritize aesthetics, ambiance, and architectural design, often incorporating elements like landscaped gardens, water features, and outdoor seating areas. These centers cater to affluent and discerning shoppers seeking a curated selection of high-end brands in a picturesque setting. With an emphasis on leisure and social experiences.
Mixed-Use Retail
Mixed-use properties are developments that combine retail space with other uses such as residential, office, hospitality, and entertainment components within the same property. These developments create vibrant, walkable neighborhoods where people can live, work, shop, and play in close proximity. Mixed-use retail projects often feature ground-floor retail units integrated with residential apartments or condominiums above, creating a sense of urban density and vitality. These types of developments are creating a dynamic urban community vibe with a range of activities, experiences and amenities for consumers.
Industrial Properties: Warehouses & Manufacturing Facilities
Industrial properties are the backbone of supply chains, serving as warehouses, distribution centers, and manufacturing facilities. These properties are designed to accommodate storage and logistics operations, supporting the movement of goods and materials across industries.
The industrial property type encompasses several subcategories, such as bulk warehouses, flex industrial buildings, micro-warehouse for last mile delivery and manufacturing plants. Each subcategory has specific features and requirements tailored to the unique needs of businesses in different sectors.
Flex Industrial
Flex industrial properties offer a versatile combination of office, warehouse, and manufacturing space, allowing tenants to customize the layout to suit their specific needs. These properties are characterized by their adaptability, with features such as high ceilings, wide column spacing, and roll-up doors, catering to a variety of businesses from light manufacturing to distribution and storage. Flex industrial spaces are ideal for companies requiring a mix of office space for administrative functions and warehouse space for inventory storage.
Micro-Warehouse
Micro-warehouses are compact industrial facilities designed to meet the growing demand for last-mile distribution and urban logistics solutions. These properties offer small-footprint storage and distribution space in densely populated areas, allowing businesses to efficiently serve local markets and fulfill online orders with shorter delivery times. Micro-warehouses typically feature modern amenities such as high ceilings, climate control, and advanced security systems to safeguard valuable inventory.
Manufacturing Plants
Manufacturing plants are industrial facilities equipped with specialized machinery and equipment for large-scale production of goods. These properties are designed to accommodate complex manufacturing processes, with features such as heavy-duty flooring, overhead cranes, and loading docks to facilitate the movement of raw materials and finished products. Manufacturing plants are typically located in industrial zones or business parks with access to transportation infrastructure such as highways, railways, and ports. They serve as the backbone of the manufacturing sector, supporting a wide range of industries from automotive and aerospace to pharmaceuticals and consumer goods.
According to Commercial Edge, in Q1 of 2024, there was more than 450 million square feet of industrial real estate space under construction accounting for 2.4% of current industrial space. With the rise of e-commerce and the demand for more efficient logistics operations, the industrial sector has experienced significant growth and transformation. In fact, in 2024, there is roughly a 5% vacancy rate of industrial space, marking a demand for this commercial property type. Understanding the latest technologies and trends in this property type can provide valuable insights for both occupiers and investors.
Multi-Family Properties: Homes for the Modern Renter
Multi-family properties refer to residential buildings that house multiple dwellings, such as apartment complexes, townhouses, and condominiums. These properties cater to the growing demand for rental housing, offering tenants a range of living options and amenities.
Within the multi-family property type, variations exist, including luxury apartments, student housing, and senior living communities. Each subcategory addresses specific market segments and requires tailored management and marketing strategies.
As the rental market continues to thrive, understanding the dynamics of supply and demand, rental rates, and tenant preferences is crucial for investors and property managers in the multi-family sector.
Hospitality Properties: For Work Travelers & Vacationers
Hospitality properties encompass hotels, resorts, and other accommodations that provide temporary lodging and services for travelers. This property type has some cross-over with retail especially in the food and beverage vertical, as a whole hospitality very much revolves around creating memorable experiences and ensuring guest satisfaction.
Food and Beverage Properties
Food and beverage, also known as F&B properties encompass a wide range of establishments including restaurants, cafes, bars, and food courts. These properties cater to diners seeking culinary experiences, socializing, and entertainment. Whether it’s fine dining, casual eateries, or specialty coffee shops, food and beverage properties play a vital role in shaping the local culinary scene and attracting both locals and tourists alike.
Travel and Tourism Properties
Travel and tourism properties include hotels, resorts, tour operators, and transportation services catering to travelers’ needs. These properties offer accommodation, leisure activities, and travel services to enhance the visitor experience. From luxury resorts in exotic destinations to budget-friendly hostels in bustling cities, travel and tourism properties provide diverse options for accommodation and activities, making them essential components of the tourism industry.
Lodging Properties
Lodging properties provide temporary accommodation for travelers, ranging from traditional hotels and motels to vacation rentals and bed-and-breakfast establishments. These properties offer a home-away-from-home experience, providing comfortable lodging options for business travelers, vacationers, and tourists. With a focus on hospitality and guest services, lodging properties strive to create welcoming environments and memorable stays for their guests, whether it’s a cozy boutique hotel or a spacious vacation home.
Recreation Properties
Recreation properties cater to leisure and outdoor activities, providing venues for sports, entertainment, and relaxation. These properties include theme parks, golf courses, ski resorts, and recreational facilities such as spas, gyms, and amusement centers. From adrenaline-pumping adventures to tranquil retreats, recreation properties offer diverse experiences for individuals and families seeking fun and relaxation. With a focus on entertainment and wellness, these properties play a key role in promoting active lifestyles and enhancing quality of life for visitors.
As the hospitality industry is continuously innovating and creating more experiential spaces for travelers to enjoy, staying informed about emerging trends, can offer a competitive edge for hospitality investors and operators.
Special Purpose Properties: Unique Assets with Specific Functions
Special purpose properties are unique assets designed to serve a specific function or industry. These properties often have limited alternative uses and require specialized knowledge and expertise to manage successfully.
Subcategories within the special purpose property type can vary widely across industries, from healthcare facilities, research and development facilities as well as religious establishments, to schools and government buildings. Each subcategory has its own set of regulations, requirements, and challenges.
Understanding the specific needs of niche industries and the intricacies of specialized properties is essential for those looking to invest in or occupy special purpose properties.
Navigating Commercial Real Estate Property Types
The commercial real estate market offers a diverse range of property types, each with its own set of characteristics, subcategories, and investment considerations. By familiarizing yourself with the intricacies of office, retail, industrial, multifamily, hospitality, and special purpose properties, you can make informed decisions that align with your specific goals and requirements for your commercial tenant.
As the market continues to evolve, staying up-to-date with emerging trends, technological advancements, and consumer behaviors will enable you to make informed investment decisions for your lease portfolio and navigate the different commercial spaces.
