Commercial Real Estate Insights
As an asset class, commercial real estate embodies any property that is specifically intended for business activities, with the main objective being appreciation, and generating rental income. There are many different property types that offer investors unique options when it comes to risk and return. Being able to specialize in multiple property types allows an investor to gain operational advantages and market expertise.
Types of Commercial Real Estate
Office
Industrial
Retail
Hotels and Hospitality
Land
Self Storage
In this blog we go into detail about multifamily and why it is an essential part of ThreeRiverGroup’s Real Estate expertise.
So what is a Real Estate Asset Class?
From private equity, Stocks and bonds, and even structured products, real estate can be used as an investment to generate returns. The various types of asset classes can carry amazing underlying advantages, as well as disadvantages when it comes to price, location, and more.
Office
Office buildings account for another major real estate asset class. Because most office spaces are intended for multiple tenants, investors can generate multiple streams of revenue. This structure provides a level of diversity, which helps investors retain cash flow in the event of a tenant terminating its lease.
Office buildings are generally divided into three classes, based on the building’s age, condition, and location.
Class A: Highest quality of buildings, with higher than average rents compared to other buildings. Most are new, easy to access in crowded locations, and have desirable conditions in regards to amenities.
Class B: Competitive buildings that are priced around ideal market rates. While they are not in the most sought after locations, they are still in similar quality as Class A buildings
Class C: Less than ideal quality of buildings that tend to be priced below the market rates. Class C provides tenants with usable space, but without the perks of A and B respectively.
Industrial
Industrial Buildings are an attractive investment due to their long term returns and leases, along with less overhead loss. Unlike other types of industrial buildings, Industrial buildings don’t have to be in more aesthetically pleasing places. Especially as the eCommerce boom continues, and order fulfillment requires delivery infrastructure, industrial warehouses are in high demand.
Retail
In regards to commercial real estate, the label “Retail” applies to any building that is occupied by businesses offering products and services to customers including stores, restaurants, and more. The eCommerce boom has affected this type of asset, but it still plays an important role in commercial classes.
Retail properties are organized into several different categories, which vary significantly depending on location, size and other factors
Strip Malls: Strip malls are typically long, narrow buildings containing multiple retail units, each with its own entrance facing a central parking lot or walkway. They often feature a mix of tenants such as restaurants, convenience stores, salons, and small shops. Strip malls are commonly found in suburban areas and serve as convenient shopping destinations for local residents.
Shopping Centers: Shopping centers are larger retail complexes that house a variety of stores, restaurants, and entertainment venues. They range in size from small neighborhood centers to large regional malls. Shopping centers often include anchor tenants, such as department stores or supermarkets, to attract shoppers and drive foot traffic. They may also feature amenities like food courts, cinemas, and playgrounds.
Outlet Centers: Outlet centers are retail developments that offer discounted merchandise from brand-name retailers. They are usually located in suburban or out-of-town locations and feature a collection of outlet stores selling excess inventory, discontinued items, or factory seconds at reduced prices. Outlet centers appeal to bargain hunters and value-conscious shoppers seeking deals on clothing, footwear, accessories, and home goods.
Stand-Alone Retail Buildings: Stand-alone retail buildings are independent structures dedicated to a single retailer or restaurant. They can vary in size and design, ranging from small storefronts in urban areas to large freestanding stores with ample parking in suburban or rural locations. Stand-alone retail buildings offer tenants greater visibility, branding opportunities, and control over their space compared to shared retail complexes.
Mixed-Use Developments: Mixed-use developments combine retail, residential, office, and recreational components within a single project. They create vibrant, walkable environments where people can live, work, shop, and socialize in close proximity. Mixed-use developments often feature ground-floor retail spaces with residential units or office space above, fostering a sense of community and urban vitality.
Specialty Retail Buildings: Specialty retail buildings cater to niche markets or specific consumer interests. They include themed retail centers, lifestyle centers, power centers, and destination shopping districts focused on particular themes or product categories. Specialty retail buildings often offer unique shopping experiences, curated selections of merchandise, and immersive environments tailored to their target audience.
Hotels and Hospitality
Comprised of both short-and long-term accommodations to travelers, both for leisure or businesses purposes
Full-Service Hotels: Full-service hotels offer a wide range of amenities and services, including restaurants, bars, room service, fitness centers, and conference facilities. They cater to both leisure and business travelers and often feature upscale accommodations, extensive guest services, and personalized hospitality experiences.
Limited-Service Hotels: Limited-service hotels provide basic accommodations and essential amenities at affordable rates. They typically lack full-service features like on-site restaurants or room service but may offer complimentary breakfast, Wi-Fi, and parking. Limited-service hotels are popular among budget-conscious travelers and business guests seeking value-oriented lodging options.
Extended Stay Hotels: Extended stay hotels provide accommodations for guests staying for longer periods, typically a week or more. They offer suite-style rooms with kitchenettes or full kitchens, along with amenities like laundry facilities, business centers, and complimentary breakfast. Extended stay hotels cater to business travelers, relocating families, and individuals needing temporary housing solutions.
Bed and Breakfasts (B&Bs): Bed and breakfasts are small lodging establishments offering overnight accommodations and breakfast in a home-like setting. They typically feature individually decorated rooms, home-cooked meals, and personalized hospitality from the owners or innkeepers. Bed and breakfasts appeal to travelers seeking a cozy, intimate, and locally immersive lodging experience.
Land
Land can be risky, but can also offer the highest return. By definition, undeveloped land leaves the responsibility entirely on the investor/ owner. This is an opportunity for owners to be creative, and also giving them a chance to be creative with what they want to see on their property. Land is extremely valuable - they aren’t making anymore of it!
Self-Storage
Self-storage facilities are commercial properties that provide storage space to individuals and businesses for storing belongings, inventory, equipment, or vehicles. These facilities offer various unit sizes, ranging from small lockers to large warehouse-style spaces, and typically feature secure access, climate control, and optional amenities like moving supplies and truck rentals.
Self-storage has become increasingly popular for several reasons:
Urbanization and Population Growth: As urban populations continue to grow, space becomes more limited, leading people to seek alternative storage solutions. Self-storage facilities offer a convenient way to store belongings without cluttering living or working spaces.
Decluttering and Downsizing: With the rise of minimalist lifestyles and the Marie Kondo effect, many individuals are decluttering their homes and downsizing their possessions. Self-storage provides a temporary or long-term solution for storing items that are not immediately needed but are worth keeping for sentimental or practical reasons.
Home Renovations and Moving: During home renovations, remodeling projects, or relocations, people often need temporary storage for furniture, appliances, and other household items. Self-storage facilities offer a secure and accessible storage solution during transitional periods.
Seasonal Storage: Self-storage is ideal for storing seasonal items such as holiday decorations, sports equipment, gardening supplies, and seasonal clothing. Instead of taking up valuable space at home, these items can be safely stored in a self-storage unit until needed.
Business Storage Needs: Businesses, especially small businesses and startups, often require additional storage space for inventory, supplies, documents, and equipment. Self-storage facilities offer flexible storage solutions that can be scaled up or down as business needs change.
Security and Convenience: Modern self-storage facilities prioritize security features such as gated access, surveillance cameras, individual unit locks, and on-site management. This provides peace of mind to customers knowing their belongings are safe and secure. Additionally, many self-storage facilities offer 24/7 access, making it convenient for customers to access their belongings whenever needed.
Affordability and Flexibility: Self-storage units are available at various price points, making them accessible to individuals and businesses with different budgets. Customers can choose the size and type of unit that best suits their needs, and many facilities offer flexible rental terms without long-term commitments.
In conclusion, the diverse landscape of commercial real estate offers opportunities for investors of all types to diversify their portfolios and pursue their investment objectives. Whether it's the stable cash flow of multifamily properties, the growth potential of office buildings, the resilience of industrial warehouses, the excitement of retail developments, the hospitality of hotels, or the practicality of self-storage facilities, each asset class brings its own unique advantages and investment dynamics. While preferences and risk tolerances may vary among investors, the appeal of commercial real estate lies in its ability to generate income, build wealth, and hedge against market volatility over the long term. By understanding the nuances of different property types, conducting thorough due diligence, and aligning investments with individual goals, investors can capitalize on the opportunities offered by the commercial real estate sector, regardless of their background or investment strategy.