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  • Raphael Collazo

What are the 5 different types of commercial real estate?

Updated: Aug 7

According to www.remony.com, a commercial real estate data aggregator

site, there are over 55 million commercial properties in the US. Given their

size and scope, it’s important to discuss the different commercial property

types so you can get a better understanding of each. In this booklet, we’ll seek

to provide you with an overview of each property type.


Multifamily


With the increasing popularity of websites such as Biggerpockets.com, this commercial

property type has become one of the most popular to invest in. As it pertains to

commercial investing, multifamily properties consist of residential buildings with more

than 4 units. This encompasses ones as small as 5-units to as large as

multi-thousand-unit complexes. There are 3 classes of multifamily properties. These

are:


Class A: The most prestigious and highest quality apartments in a given area. They’re

close to many of the best restaurants, bars and entertainment centers. These

apartments are rented by affluent households and command above average rents. They

usually have high-quality finishes, state-of-the-art systems, great accessibility, excellent

amenities and a definite market presence.


Class B: Although not as highly coveted as Class A apartments, these buildings still

attract a broad base of tenants. These include middle class families, young

professionals and retirees who don’t want to deal with the responsibility that comes

with owning a property. However, tenants of Class B apartments will be much more

price conscious than their Class A counterparts. Therefore, rents will tend to be in the

average range for the area. Building finishes are usually fair to good, amenities are

adequate, and they’ll be located near a handful of good restaurants, bars and retail

centers.


Class C: These apartments are often not the most appealing. They may be antiquated,

poorly maintained and/or inconveniently located. As a result, tenants who seek out

these spaces are often extremely price conscious. They’re just looking for functional

living space and are only willing to pay rent that is below the average for the area.


Retail


With over 3.4 million storefronts in the US, retail properties are one of the most

common types of commercial real estate. As a free market society, our economy relies

on the exchange of goods and services. Because these exchanges often require

face-to-face interaction, many businesses need a physical location to conduct their

day-to-day operations. This presents a unique opportunity for real estate investors who

are interested in renting space to these individuals. There are 3-classes of retail space.

These are:


Class A: The most upscale and accessible retail properties in a given area. They’re

located along high traffic roadways with affluent demographics, they house many large

national retailers with upscale brands and have plenty of parking, both self-serve and

valet, to offer prospective shoppers. These retail locations are rented to affluent

business owners who require a high-quality location as part of their brand. For this

reason, they’re often willing to pay above market rent. In exchange for renting space at

these properties, tenants are offered a slew of amenities including, but not limited to,

access to a garage, valet parking, boutique windows, high quality awnings etc.


Class B: Although not as highly coveted as Class A retail, these buildings still attract a

broad base of tenants. These range from small mom-and-pop retailers, regional chains

and well-established national businesses. However, tenants of Class B retail space are

often much more price conscious than their Class A counterparts. Therefore, rents tend

to be in the average range for the area. Building finishes are usually fair to good,

amenities are adequate, traffic counts are satisfactory, and the area’s demographics will

be comprised of middle-class households.


Class C: These retail buildings are not the most desirable. They may be antiquated,

poorly maintained and/or inconveniently located. As a result, tenants who seek out

these spaces are often extremely price conscious. They’re just looking for functional to

operate their business out of and are only willing to pay rent that’s below the average for

the area.


Office

If you work in a corporate environment, you’re probably quite familiar with this

property type. Office buildings are generally organized into two categories: urban or

suburban. Urban office buildings can be found in large metropolitan areas and include

skyscrapers and high-rise properties, some of which, total as much as a few million

square feet in size. On the other hand, suburban office buildings are usually smaller in

stature and are sometimes grouped in office parks.


Office buildings can be “single-tenanted” (i.e. housing one tenant) or “multitenanted”

(i.e. housing more than one tenant). According to the Building Owners and

Managers Association International (BOMA), office buildings are ranked into three tiers.

These are:


Class A: The most prestigious and highest quality buildings in a given area. These

spaces compete for premier office users and command above average rents. They

usually have high-quality finishes, state-of-the-art systems, great accessibility and a

definite market presence.


Class B: Although not as highly coveted as Class A office space, these buildings still

compete for an array of users. These range from small local businesses to large national

tenants. However, Class B tenants will be more price conscious than their Class A

counterparts. Therefore, rents will be in the average range for the area. Building finishes

are usually fair to good for the area and systems are adequate.


Class C: These building are often not the most appealing. They may be antiquated,

poorly maintained and/or inconveniently located. As a result, tenants who seek out

these spaces are often extremely price conscious. They’re just looking for functional

space and are only willing to pay rent that is below the average for the area.


Industrial

This is one of the most intriguing property types that I continue to enjoy learning about.

Industrial properties range from small 1000 sq. ft. workshops to massive industrial

spaces of more than 1,000,000 sq. ft. Some of the uses of industrial buildings include

logistics (i.e. trucking, distribution etc.), manufacturing, construction, trades (i.e.

electrical, plumbing, contractors etc.) as well as many more. There are 3 tiers of

industrial properties. These are:


Class A: These are the most hi-tech, highest quality and strategically located buildings

in a given area. They’re close to major roadways, are equipped with state-of-the-art

heavy machinery, have plenty of loading bays for large trucks etc. These spaces

compete for large, well-established industrial clients and command above average

rents.


Class B: Although not as highly coveted as Class A industrial space, these buildings still

compete for a wide range of users. Potential tenants include small local manufacturing

operations to large regional industrial companies. However, Class B tenants are more

price conscious than their Class A counterparts. Therefore, rents will be in the average

range for the area. These buildings are generally relatively close to major roadways,

have functional equipment, have a variety of loading bays but may be slightly older and

not as functional.


Class C: These buildings are not the most appealing. They may be antiquated, poorly

maintained and/or inconveniently located. As a result, tenants who seek out these

spaces are often extremely price conscious. They’re just looking for functional space and

are only willing to pay rent that is below the average for the area.


Hospitality

This property type is one that’s prevalent in large metropolitan areas. The hospitality

industry consists of 7 sectors. These include accommodation, food and beverage,

meeting and events, gaming, entertainment and recreation, tourism services, and visitor

information. There are 3 tiers of hospitality properties. These are:


Class A: These are the most prestigious, highest quality and conveniently located

buildings in a given area. They’re close to the city’s major attractions, offer the most

luxurious amenities, have a well-trained staff who can handle almost any request made

by their guests etc. These hotels attract an affluent clientele who are willing to pay a

premium price.


Class B: Although not as highly coveted as Class A hotels, these buildings still attract a

wide range of guests. These include families on vacation to businesspeople travelling for

work. However, Class B tenants are more price conscious than their Class A

counterparts. Therefore, nightly rates will be close to the average range for the area.

These buildings are generally close to major roadways, have basic amenities and may

afford tenants benefits such as a free continental breakfast, free parking, free

high-speed internet etc.


Class C: These buildings are not the most appealing. They may be antiquated, poorly

maintained and/or inconveniently located. As a result, guest who stay at these hotels are

often extremely price conscious. They’re just looking for a cheap place to spend the

night and are only willing to pay below the average nightly rate for the area.


If you’re interested in buying, selling or leasing commercial property, I’d be happy to

help! With over 40 years of combined experience, our brokerage is well equipped to help

you navigate the many facets of a commercial real estate transaction. Feel free to reach

out to me via email at raphael@grisantigroup.com or give me a call at 502-536-7315. I

look forward to being your go-to resource for all your commercial real estate needs!

Contact

201 Moser Rd Suite C 

Louisville, KY 40223

​​

Office: (502) 253-1811

Mobile: (502) 536-7315

raphael@grisantigroup.com

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© 2023 by Raphael Collazo: Commercial Real Estate Agent, Author, Coach and Professional Speaker