Nubricks Blog - What is the difference between commercial, industrial and retail real estate?

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10 May 2017

What is the difference between commercial, industrial and retail real estate?

These types of real estate are so often confused and it is easy to understand why since they are so similar. Industrial and retail real estate are both seen as commercial real estate but when we just talk about commercial real estate we refer to the land or buildings that generate profits. Retail and industrial are simply sub-categories associated with commercial real estate.

For instance, a building that would be rented by Seattle Malpractice Lawyers would be a commercial listing but it cannot fit in the industrial sub-category. Industrial properties will be used to manufacture something, normally a plant or a factory. The zoning is tailored for the type of industry (heavy, medium or light).

A retail property is basically a zoned area that is solely used for business purposes, for selling a product, not for manufacturing it. This includes shopping centers, malls, many shops under one roof and retail stores.

In most cases the business that will occupy the commercial property will lease it. Investors own buildings and then collect rents from the businesses that operate on the premises. Different commercial real estate leases are now popular. Every single one has different responsibility levels that come from tenants and landlords. We thus have:

  • Single net leases – The tenant pays property taxes and rent.

  • Double net leases – Tenants have to pay insurance, property taxes and rent.

  • Triple net leases – A tenant has to pay maintenance, insurance, property taxes and rent.

  • Gross leases – Tenants just have to pay rent while landlords pay everything else.

Owning commercial property is something of interest for many different real estate investors, mainly because of the huge profit that can be made. However, this does not mean all investors will make money. If you want to own commercial real estate, remember the following things that are needed:

  • An Attractive Appearance – You do not want to have vacant commercial properties for a long time frame. Prospective tenants will always first think about what their customers will want to see. You should think about the same thing.

  • Aesthetic Entrance – In real estate you are always told that the front door is the one that adds the most curb appeal. This is also the case with commercial properties. You want to be sure you make a good first impression. Putting prospective clients in good mind frames is easier with a good entrance and clients will also be attracted.

  • Natural Lighting – This is something that is in pretty high demand at the moment. It is not mandatory but it will surely add value.

  • Location – No matter what you have, location is going to always make or break the success of commercial real estate ownership. You generally want properties that are close to transportation, public amenities and offices.

The historic return rate for retail property since 1980 is around 9%. However, at the moment it is close to 6% since the market is low. The highest volatility is found in industrial real estate. However, the safest option is in the retail market if the location is well-chosen.
Category: USA

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