It may sound like a simple question, but knowing what makes a property “commercial” is essential. Small businesses, would-be freelancers, businesses that are upscaling, and even large companies benefit from being well informed of the legal and practical differences.
Commercial Property Definition
In the simplest sense, commercial real estate is defined as any property that is owned because it can produce income. Commercial real estate may be a standalone small business office, a workshop added to a suburban home to produce handmade wooden lawn ornaments, a fast food restaurant, an apartment complex, or any other structure that was bought or built with the assumption that it would generate income. The income generated may be direct, such as with a retail store or law office, or it maybe indirect because the building produces items to be sold (e.g., the suburban workshop described above). As you can see, this definition is very broad and encompasses a wide variety of uses and potential business cases.
Fundamentally, it is easier to define what a commercial property isn’t: it is nota residence occupied by owners. An apartment building owned by a landlord is a commercial property; a suburban home where the kids have a lemonade stand is not. An industrial space where a brewpub brews beer is a commercial property; a high school is not. Yet if the enterprising kids build themselves an orchard and create a permanent lemonade stand, the property becomes partly commercial.A third-party, private cafeteria selling branded food to students is partly a commercial property.
Although there may be specific definitions tied to permits, licensure, and local jurisdictions, this fundamental definition should be considered when purchasing this type of property or when purchasing property regardless. Anyone who has plans to start a business, for example, will want to be well aware of the complexities surrounding commercial property. Thus, the following topics include things you should know before buying a commercial property and the various types of commercial properties.
Things to Know Before Leasing a Space in a Commercial Property
Ask most realtors for any things you should know, and they’ll likely chant back “Location, location, location.” While many enterprising types can make any location work, it is important to consider the location of a property and how it might intersect with the planned business. If the business is dependent on foot traffic, it obviously should not be located in the trenches of suburbia; if an enormous amount of space is required for industry, a good location may be a place distant from the center of town.
Before purchasing, you should be familiar with the basics of buying and mortgaging a property, as well as the ways your specific business type (e.g., S-corp, LLC) may affect your ability to lease or mortgage property. You should have an idea as to how specialized you need your space to be, and you should have a budget in mind for both the building as well as for getting it ready for your needs. Some businesses may only need a few desks and a Wi-Fi connection; others may need specific equipment. You should know some basics about buildings and their maintenance, as well as the basic formulas for appreciation and depreciation so that you can calculate the financial impact of your purchase and estimate the depreciation if necessary. You should also be sure that you or your business can afford the property, that you have a good credit score, and that your business will use the space effectively.
Types of Commercial Properties
You can live in a house, a condo, a mansion, boat, treehouse or a yurt if it suits you, and the same is true of commercial properties. Just as there are many types of residential properties, so too are there multiple types of commercial properties. The basic categories are office properties, retail, industrial, multi-family/ commercial real estate, and empty land.
Offices as Commercial Property
Office properties refer to office suites or buildings. These properties exist to conduct business. They are ideal locations for professional practices, such as attorneys, accountants, or white-collar businesses, such as IT firms or even doctor’s offices. These are generic spaces that can be modified if necessary, such as in the case of a medical office, but they fundamentally exist to facilitate the provision of services rather than goods.
Retail Commercial Property
Retail commercial properties exist for selling products. They are often highly customized, and designed to provide an exciting or relaxing experience for customers. They usually include both a sales floor as well as a stock room, and may also have a shipping and receiving area where stock is unloaded or where large items are loaded into customers’ or other vehicles.
Industrial Commercial Property
An industrial commercial property or warehouses are focused on producing items, rather than directly selling them. These spaces are usually utilitarian, and focused on storage and production. They can be highly customized and may have to be zoned for this specific use. For this reason, they are often found outside of urban areas. They are often very large.
Multifamily Commercial Property
Since commercial real estate is also a type of commercial property, multifamily properties such as apartment complexes also constitute a unique type of property. These buildings may consist of duplexes, triplexes, or larger apartment / condo buildings, as well as administrative offices and amenities such as clubhouses or gyms. This land must be zoned appropriately and since it is designed to attract residents, it must be in a desirable location for the market and for the market segment that the owners wish to attract.
Land as Commercial Property
Empty land is also valuable and can constitute commercial property. Empty land isn’t just for ranches and farmers anymore. People have always made money buying and trading empty land (i.e.,speculation), hoping that it would appreciate in value at the point when it is either going to be developed or sold. They are not making any more land, so this is usually considered to be a good investment. However, as the world becomes increasingly built up, land properties are becoming scarcer and exist in remote areas.
There are always exceptions to these categories. As businesses evolve and as people innovate, these categories will continue to push their boundaries. One trend to watch in particular is the rise of blended spaces: As freelancing becomes even more common, people will work from their homes more frequently.
Ready to Get Started with Commercial Property?
No matter what it is you do, whether it is IT design, accounting, podiatry, manufacturing, property development, film and media development, personal assisting, performance art, providing legal advice, making wooden garden gnomes, selling artisanal scarves made of llama wool, or anything else, there is a commercial property for you. With this overview, hopefully you feel ready to proceed, no matter what it is you seek. Checkout our listings and let us help you realize your business’ goals.