Contents:
- Office
- Industrial
- Retail
- Multifamily
- Niche property types:
- Conclusion
The term real estate covers a lot of ground (no pun intended). Commercial real estate (CRE) is a subset of real estate and can include anything from apartment buildings to hotels to warehouses. Understanding a potential investment’s property type and the economic factors that typically affect it may help you better evaluate if the deal fits into your portfolio. We also encourage you to review investment opportunities with your legal, financial, and tax advisors.
In general, commercial real estate is divided up into four categories: office, industrial, retail, and multifamily. Each property type can be further divided into multiple sub-categories. There are also a number of more “niche” property types that don’t fit neatly within the four, including hotels, self-storage, and senior housing.
In this article, we’ll go over the main four property types as well as some popular niches.
Office
First, let’s look at office. Office buildings come in all shapes and sizes, for example a 100-story glass and steel tower in Manhattan to a one-story bricker in Des Moines. Employment growth is generally a demand driver for office, especially in those industries that are heavy office users like finance, insurance, or tech.
Office properties are generally distinguished by height, location, and use.
Height
Offices are typically organized into three height classes:
- Low-rise: <7 stories
- Mid-rise: 7-25 stories
- High-rise: 25+ stories
Certain types of tenants may prefer one height class over another. Big law firms might prioritize views to impress clients while creative tech users might prefer lower-rise buildings for the easy access to bring a dog to work.
Location
Location for office generally consists of two types: central business district (CBD) and suburban. Think the Loop in downtown Chicago versus Arlington Heights, IL.
Use
Finally, office buildings vary by use. The most common is general office use, with tenants who might be in white-collar professional services and/or tech. However, specialized office use, such as a medical office, might have or need significant tenant improvements and custom floor plans.
Learn more about office properties: How to Invest in Office Real Estate.
Industrial
Next, let’s cover the industrial property type. Industrial real estate is intended to provide practical and efficient space to businesses that generally prioritize function over form.
Demand for industrial assets is often dependent on the overall strength of the economy and growth—the more people shopping, shipping, and storing, generally the more industrial space is needed. Warehouse space in particular may be affected by export and import activity.
Industrial generally breaks down into three categories:
- Manufacturing
- Warehouse
- Flex/R&D
Retail
The third category is retail. Retail property types range from single-tenant buildings, like a stand-alone pharmacy, to full shopping centers with dozens of tenants. Demand for retail space is driven by consumer spending habits and trends.
Retail centers that have more than a single tenant are generally grouped by size and tenant type.
- Malls: Regional malls include inline retail, service, and restaurant tenants, as well as major department store anchors like Macy’s or Nordstrom.
- Community and neighborhood centers: These centers include a mix of general merchandise or convenience-oriented tenants and are often “anchored” by a big box retailer such as Target, Walmart, or a grocery store.
- Strip centers: These centers generally focus on convenience tenants such as dry cleaners, nail salons, and sandwich shops.
- Power centers: These centers are dominated by “big box” retailers like Best Buy or Dick’s Sporting Goods, with only a smattering of smaller tenants.
- Lifestyle centers: Lifestyle centers tend to be open-air and feature upscale apparel and other retailers, along with dining and entertainment.
Learn more about retail properties: How to Invest in Retail Real Estate.
Multifamily
Finally, let’s look at the last of the big four categories: multifamily (think apartment buildings).
Population growth has a big effect on demand for multifamily. When the number of renters in an area increases, the range in apartment property offerings expands to fit their varied needs and tastes. Size, density, location, and amenities break up the multifamily property type.
Multifamily also covers a number of niche property types for specialty markets, such as student housing and Build-to-rent (BTR).
Learn more about multifamily properties: How to Invest in Multifamily Real Estate.
Niche property types
Now that we’ve covered the big four property types, let’s take a look at some of the prominent niche property types.
Hospitality
First, let’s look at hospitality. The main type of property within the hospitality moniker is hotels. Hotels are defined primarily by the services and amenities that they offer, but also by the “flag” or operating brand of the property. This includes brands like Holiday Inn, Hilton, and Marriott, among others.
Unsurprisingly, travel and tourism activity in a specific market largely drive the demand for hospitality assets in that location.
The three main types of hotels include:
- Full-Service
- Limited-Service
- Budget
Learn more about hospitality properties: How to Invest in Hotel Real Estate.
Senior Housing
The next niche property type is senior housing. The aging Baby Boomer population is attracting more investment capital into this sector in terms of acquisitions, development, and property renovations. Senior housing properties aim to provide both housing and services to seniors, and are generally split up into four categories based on the level of care provided.
- Independent Living
- Assisted Living
- Nursing Homes
- Memory Care
Self-Storage
The last niche property type we’ll cover is self-storage. Self-storage is a segment of the real estate market that has continued to evolve in the past decade. The traditional rural and suburban properties with gravel driveways and roll-up metal doors are being replaced with modern facilities and sophisticated operators.
Demand drivers for self-storage assets include population growth and density, average household size, and average household income.
Learn more about self-storage properties: How to Invest in Self-Storage Real Estate.Conclusion
This has been an overview of CRE property types. If you have any additional questions, explore our Resource Center for additional articles on property types, such as The Definitive Guide to Commercial Real Estate Property Types and Breaking down the nuances of each asset class. Or, reach out to our Investor Relations team by asking us a question.