In this installation, we'll explore the different property types at play in commercial real estate. Whether it’s an established retail center or a new mixed-use development, each have several nuances and benefits to consider.
When considering your commercial real estate investments, these property types will be a major determining factor in your ROI.
Office
An office building is the most common type of commercial real estate.
No one knows precisely how the market for office buildings will respond over the next few years, but creative new options like virtual office spaces have been appearing in the recent years. Thinking outside traditional office roles will continue to be a consideration moving forward in a post COVID world.
Retail
Retail commercial properties come in so many varieties that it's impossible to list them all in a single article. A retail property in a bustling urban area generates enough income for further investment.
But as with the market for office buildings, a lagging economy could continue to force businesses to close periodically. We believe that over the next 18-36 months, there will be opportunities to buy assets at a discount as a result of the shifts in the industry. Investing in a fund to acquire distressed real estate opportunities, such as the Fortress Equities Real Estate Value Fund, can be very advantageous in this type of market.
Industrial
Industrial facilities are another type of commercial property that many first-time investors overlook, and manufacturing sites aren't the only industrial facilities available. Companies in the manufacturing industry need logistical support and facilities that can accommodate their operations. Thus, investments in industrial property tend to perform well over time.
Multi-Family
Multi-family commercial properties, usual structures like apartments and condominiums, are where many investors get started in commercial real estate. Once you invest in a small mixed-use development, it's easier to invest in larger properties gradually at a steady pace.
One potential pitfall to consider is that these properties have much shorter leasing agreements, and tenant turnover could be an issue over the years.
Special Purpose and Mixed-Use
Special purpose commercial properties include structures and spaces that you can't readily renovate into another commercial investment type. A large hotel or a sports stadium in a major city are two great examples of special purpose real estate. Also, a mixed-use structure could include residential spaces and retail spaces, which could diversify revenue sources.
In closing…
Knowing what type of commercial property you want to invest in should be one of the first things you consider when you involve yourself in CRE. Certain businesses tend to do better in specific areas, and location is an equally important factor for maximizing ROI. In our next post we’ll look at how location affects property earnings, and what effects close proximity to certain amenities can have on specific business types.