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The Basics of Commercial Real Estate

Commercial Real Estate

Commercial real estate along with residential real estate comprises the two primary categories of property. Residential includes structures reserved for human habitation and not for commercial or industrial use. As its name implies, commercial real estate is used in commerce.

Some zoning and licensing authorities further break out industrial properties—sites used for the manufacture and production of goods, especially heavy goods—but most consider it a subset of commercial real estate.

Commercial real estate is categorized into four classes, depending on function: office, industrial, multifamily, and retail. Individual spaces are also categorized. Office space, for example, is characterized as class A, class B or class C.

  • Class A represents the best buildings in terms of aesthetics, age, quality of infrastructure, and location.
  • Class B buildings are usually older and not as competitive—price-wise—as Class A buildings. Investors often target these buildings for restoration.
  • Class C buildings are the oldest, usually over 20 years of age, located in less attractive areas, and need for maintenance.