Investing in Commercial Real Estate


Commercial real estate is any property used for business purposes, including office buildings, hospitals, retail centers, malls, warehouses, multifamily rental properties and even farm land. It is distinct from residential real estate and often referred to as “investment property,” as it offers investors the potential for capital gains and rental income. Investing in CRE requires a larger upfront investment than investing in residential real estate, but offers higher rates of return and the ability to diversify a portfolio with an alternative asset class.

While the commercial real estate industry can be complex, there are a few key components to understand. The four main types of commercial real estate are offices, industrial, retail and multifamily rental properties. These are further broken down into more specific categories. For instance, industrial real estate includes properties like warehouses and heavy manufacturing plants that are used for the manufacture of goods. This category is further subdivided into more specific classes, with class A warehouses being the highest-quality and most desirable to buyers and investors.

Retail real estate refers to shopping malls and strip malls as well as stand-alone stores. Generally, the more popular, well-known retailers will be the anchor tenants and help draw interest to the property from buyers and renters alike. More info


Multifamily rental properties are those that contain multiple housing units and typically house people, such as apartment buildings, condominiums or high-rise apartment buildings. They can also include structures that cater to a particular population such as student housing or senior living, as well as structures that offer mixed-use, such as retail spaces on the ground floor and rental units above.

CRE is an attractive investment for a number of reasons, from the opportunity for capital appreciation to the relative stability of the sector compared to other asset classes. However, the complex nature of CRE investments means that it is often best reserved for high-net-worth individuals who have a deep understanding of the industry or can hire teams to manage their investments on their behalf.

Investors can choose to either directly invest in commercial real estate or indirectly through mutual funds, REITs or private equity that seek out CRE investments. Indirect investments offer lower upfront costs and may not be as tax-efficient, but they still come with their own set of risks. CRE investing is highly speculative and can be volatile, so the ideal investors are those who can afford to take on some risk with the hope of potentially large returns.


Another benefit of CRE is that it offers relatively long lease contracts, which provide steady cash flow for investors over the course of several years. This makes them a valuable addition to any balanced investment portfolio. In some cases, commercial property owners opt to use “percentage leases” in which they charge a base rate plus a percentage of the tenant’s gross income. This is commonly seen in the retail and restaurant industries, and can be beneficial for both parties as it provides flexibility during slower times.

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