As a real estate investor, you may have heard about commercial properties or

commercial real estate (CRE). However, many people don’t know what exactly is

commercial real estate and how it differs from residential property. CRE refers to

any building or land used for business purposes. The distinction is important

because it affects the type of financing available and taxation applied to it. It also

affects the risks and potential returns of investing in this asset class.

The main distinction of commercial real estate is that it’s leased for business use

with the intent to generate an investment return through rental income or price

appreciation. CRE is a broad category with multiple sub-categories. Some examples

include: hotels, retail, industrial, mixed-use, office, multifamily, and special purpose. For more


Retail buildings are leased to businesses that sell their goods or services directly to

consumers through storefronts. These tenants are typically more dependent on

macroeconomic trends and consumer discretionary spending than other types of

business tenants. This makes these properties a more volatile investment.

Fortunately, retail spaces have longer lease terms than rental residential properties,

which helps reduce overall risk in this space.

Office buildings are leased to businesses that need an office environment for

conducting their daily operations and customer-facing activities. These buildings

require more security than other types of commercial real estate, as they are home

to sensitive information and valuable records. Office buildings are typically built with

high ceilings, secure entryways and plenty of windows for natural light.


Warehouses are leased to businesses that need space for storage and distribution of

goods or materials. These buildings typically need large ceilings, high doors and

wide clearances to accommodate large inventory and equipment. They are also

typically built in locations with easy access to major roads and highways for

transporting inventory.


Miscellaneous commercial properties are leased to businesses for more specific,

unique or eccentric uses. These spaces can include bowling alleys, movie theaters,

self-storage, and student housing.


Investing in CRE offers an attractive return profile when compared to other asset

classes. The main benefits are regular cash flow from rent payments, as well as

price appreciation over the long term due to scarcity and market-driven factors.


However, there are certain risks associated with this asset class, including market

rental rate fluctuations and vacancy rates. In addition, CRE can be more expensive

and difficult to finance than other asset classes. For these reasons, it’s important to

understand the fundamentals of CRE before getting started in the industry. Whether

you’re a potential investor, broker or lender, understanding the basics of this sector

can help you make more informed decisions about your investments. You can start

by reading CRE blogs, listening to podcasts or joining a local real estate investor

group. For those interested in gaining indirect exposure to this asset class, you can

purchase shares of a REIT or participate in an investment fund. These vehicles offer

diversified exposure to this asset class and eliminate much of the work involved in