EVERYTHING YOU NEED TO KNOW ABOUT COMMERCIAL REAL ESTATE

Commercial real estate is property used for any business activities and in return generates profit through rental income and capital appreciation for its owners. This broad category includes everything from a single storefront to a huge shopping center which also comes in varieties of forms such as; office space, hotels and resorts, strip malls, restaurants etc. Registered corporate companies and private individuals can make money from commercial real estate by either leasing out, buying on hold, and also selling it out.

Commercial real estate investment is classified into CLASS A, CLASS B and CLASS C. and your return on investment will be influenced by a variety of factors associated with the property that you purchase in these classes, but identifying these differences in this classification may help to narrow your focus as you move forward.

Commercial real estate is further divided into five (5) main categories;

1. Office space
2. Retail
3. Multi-family rentals
4. Hospitality
5. Industrial

OFFICE SPACE

Office buildings are designed for official businesses and range from mid-rise to high-rise buildings usually classified into multiple formats. Tenants occupying these properties are usually on long-term leases since business owners often do not want to shift their workforce around. Office spaces are further classified into three main categories based on their locations and the health of their surrounding market.

CLASS A: These buildings are premium and are also considered the best in terms of infrastructure and location. They have excellent management facilities and are the newest buildings usually high-rise in the market.

CLASS B: These buildings are slightly older than CLASS A buildings and lack the characteristics of premium properties, but they are professionally managed and also have functional facilities. Investors often target these buildings for reformation as they are found in less desirable locations.

CLASS C: These buildings are usually the oldest of these three categories and require extensive renovation but are also found in an undesirable location and are often the downline of commercial office buildings.

KEY TAKEAWAY:

• Office buildings located in a central business district are those that are situated in the heart of a city.
• In larger commercial cities like; Lagos, Abuja, Port Harcourt, and Anambra these buildings which include high-rise and mid-rise are found in downtown areas.
• Suburban office space generally includes the mid-rise and low-rise structures located outside of a city.

RETAIL PROPERTIES

These properties are usually considered for a wider range of commercial purposes. These spaces are also more expensive than office space due to their nearness to high-traffic areas. Tenant’s also occupying these properties are also on a long-term lease as some of the tenants are ‘anchor tenants.

Anchor tenants- are larger retail tenants which usually serve to draw customers into a property.

Retail properties are further classified into three;

• Community Retail Center: Multiple anchors occupying such properties in carrying out their business activities are; grocery stores and drug stores. It is also common to find one or more restaurants located in such properties.
• Power Centers: This generally has several incline retail stores but is further distinguished by the presence of a few major box retailers and these retail centres typically contain several out parcels.
• Out Parcels: Most larger retail centres contain one or more out parcels which are parcels of land set aside by individual tenants such as; food restaurants and banks.

Examples of retail properties include; department stores, grocery stores, fast food restaurants, auto parts stores, boutiques etc.

HOSPITALITY

These include properties for relaxation and tourism.

Hotels and Motels are considered the bedrock of these types of properties because their owners and operators are in the business of providing temporary accommodation. Other types of properties include; Leisure and resorts, Health care, Education and Urban Renewal Projects, Amusement parks, Bowling Alleys, Theaters, Zoos, Water Parks etc.

These properties are designed to offer a level of services and period of accommodation to customers and are often located at customers’ destinations or on the path of their journey.

MULTI-FAMILY RENTALS

These are primarily apartment buildings which include multi-unit residential complexes. Even though they are residential properties, they are also classified as commercial properties because apartment buildings are businesses that provide accommodation and lodging for a fee. Due to their intensive economic uses, these properties are often located in areas that are commercially zoned with proximity to other commercial areas with higher land values.

There are four primary types of commercial property leases, with each one requiring different levels of responsibilities from both the landlord and the tenants.

• Single Net Lease; This Is a lease agreement where the tenants take the responsibility for paying property tax in addition to rent.
• Double Net Lease; Makes the tenants responsible for both property taxes and insurance premium dues.
• Triple Net Lease; Assigns sole responsibility to the tenants for all costs relating to the assets being leased in addition to rent.
• Gross Lease; The tenants pay only rent, and the landlord pays for the building’s property tax, insurance and maintenance.

Other examples of commercial real estate are:

• Mixed-use: This is a combination of office, residential, multi-family and industrial properties in one. The most common form of mixed-use properties, especially in cities are retail/restaurant properties with offices or residences sitting at the top.
• Land:
• Greenfield land refers to underdeveloped lands such as a farm or pastures.

Infill Land: Are located in a city that has already been developed but is still vacant. Infill is strictly associated with the development of real estate in urban locations.

Brownfield Land: These are parcels of land previously used for industrial or commercial purposes but are now available for reuse. These properties are generally environmentally impaired or at least are suspected of being so due to previous commercial uses.