Commercial Real Estate (CRE)
Key Takeaway
- Commercial Real Estate encompasses a variety of properties such as multi-family residential rental properties, retail spaces, office buildings, warehouses, hotels and resorts, and mixed-used commercial spaces that can generate rental income or capital gain for investors.
What is Commercial Real Estate?
Properties that are meant for commercial activities and income generation come under the domain of Commercial Real Estate (CRE). These properties can potentially generate profit for the investors in the form of rental income and capital gain. Any property that you can lease out, or hold and sell may be categorized as Commercial Real Estate.
Commercial real estate may include the following:
- Multi-family residential rental properties with more than 5 units such as condominium complexes and apartment buildings
- Retail properties which could have multiple tenants such as malls and shopping complexes, or single use standalone buildings such as a department store.
- Office buildings and spaces that businesses can rent for their operation.
- Industries and warehouses meant for production and storage of commercial goods.
- Hotels and resorts of different scales and kinds that cater to accommodation, food and other services to travelers and tourists.
- Mixed-use commercial and residential properties which generally have shops on the ground floor and residences above.
- Special purpose properties such as amusement parks, zoos and storage facilities that are meant for a special purpose that can’t be classified under a broad category.
Investing in commercial real estate often requires a large upfront capital investment. At the same time, managing a real estate portfolio can be time-consuming and complex. It is ideal for an investor to have knowledge of the markets before opting to directly invest in real estate.
Instead of investing in directly, investors can choose to invest in an REIT (Real Estate Investment Trust). REITs are traded on stock exchanges and have many variations such as stocks, ETFs and mutual funds. This way, investors can invest in real estate without having to buy a property and the rental income is paid out to them as dividends.