8 Types of Commercial Real Estate Investments

Commercial real estate offers many investment opportunities, from office buildings to retail spaces, industrial properties and multifamily apartments, as well as specialized properties like hotels. Each investment has specific benefits and drawbacks, so knowing the differences can help you make informed decisions. If you're interested in investing in commercial real estate, a financial advisor can help you analyze different options for your portfolio.

1. Office Buildings

Office buildings are one of the most popular types of commercial real estate investment and can range from skyscrapers in urban centers to suburban business parks. Investing in office buildings can offer you steady income by leasing to various businesses, from small firms to large corporations. These properties are categorized into three classes:

• Class A : Top-tier buildings that are often newly constructed or extensively renovated, featuring prime locations, high-end finishes, and modern amenities.
• Class B : These buildings are a step down, typically older but well-maintained, offering functional space at a more affordable price.
• Class C : Older buildings, often needing renovation, and located in less desirable areas, representing higher risk but potential for significant value-add opportunities through improvements.

2. Retail

Retail real estate investments encompass properties where businesses sell goods and services directly to consumers. Retail spaces often attract high foot traffic and visibility, which can drive consistent rental income . Investors typically evaluate factors like location, tenant mix and lease terms to gauge the potential profitability of retail investments. Types of retail properties include:

• Shopping centers: Large complexes with multiple stores, including anchor tenants like supermarkets.
• Standalone retail stores: Single-use buildings for one retail business, often seen in prominent locations.
• Restaurants : Restaurants can attract consistent foot traffic, enhancing the property’s overall value.
• Strip malls: Smaller clusters of retail stores, typically without major anchor tenants.
• Outlet centers: Shopping centers with brand-name retailers offering discounted prices.
• Regional malls: Large indoor shopping malls featuring a variety of stores, entertainment options, and food courts.

3. Industrial

Industrial properties make up a significant segment of commercial real estate investments . These properties cater to manufacturing, storage and distribution businesses. There are several types serving specific business needs:

• Warehouse/distribution centers: These facilities store goods and materials before they are shipped to retailers or directly to consumers.
• Manufacturing buildings: These structures are equipped for the production and assembly of goods. They often feature specialized equipment and ample space for operations.
• Research and development (R&D) facilities: These properties are designed for companies focusing on innovation, offering lab spaces, offices, and light manufacturing areas.

4. Multifamily Residential

Multifamily residential properties include apartment complexes, townhouses and condominiums that house multiple families or individuals. Investors are often attracted to this type of investment due to the potential for steady rental income and scalability. Additionally, multifamily properties can also increase in value through renovations and property management improvements. Finally, financing options can be more favorable, reflecting the stability and demand within this sector.

5. Hotels

These properties include a wide range of establishments, from luxury resorts to budget-friendly motels. Investors can benefit from multiple revenue streams, including room rentals, event hosting and on-site amenities such as restaurants and spas.

The performance of hotel investments is often tied to tourism trends, economic conditions and business travel, making market research and location analysis critical. Additionally, hotel investments typically require active management and operational expertise to maximize profitability and maintain high occupancy rates.

6. Special Purpose

Special purpose properties are a unique type of commercial real estate investment, typically designed for a specific use that isn't easily repurposed. These properties include structures like amusement parks, stadiums, schools and airports. Investors in special purpose properties can benefit from long-term leases and stable tenants due to the specialized nature of the facilities.

However, the niche use can make these properties harder to re-market if the original tenant vacates. As a result, thorough market research and understanding of the property’s specific industry are important for potential investors.

7. Mixed-Use Developments

Mixed-use developments combine residential, commercial, and sometimes industrial spaces within a single project. These investments create vibrant, self-contained communities where residents can live, work, and shop without extensive commuting. Typically, a mixed-use property might include apartments or condos, retail stores, restaurants, and office spaces.

The blend of different property types within one location can lead to diversified income streams, reducing the risk for investors. Additionally, these developments often benefit from increased demand due to their convenience and the trend toward urban living. Investing in mixed-use developments can offer a dynamic and potentially lucrative opportunity in the commercial real estate market.

8. Land

Land can be developed into commercial uses, such as retail centers, office buildings or industrial parks. Investors often purchase land with the intent of either developing it themselves or selling it to developers at a profit. The value of land can appreciate over time, especially in areas experiencing growth and development.

Additionally, land investments typically involve lower maintenance costs when compared with developed properties. However, investors should consider factors such as zoning laws, environmental regulations, and the overall market demand for the type of development envisioned.

Bottom Line

Commercial real estate encompasses a wide range of investment opportunities that can diversify and help your investment portfolio grow. Before you buy commercial real estate, however, you should research the different types available and make sure you compare the benefits and drawbacks for your portfolio.

Real Estate Investment Tips

• A financial advisor can help you figure out strategic ways to add real estate investments to your portfolio. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now .
• When buying commercial real estate, make sure you know how to set the rent to pay off the mortgage on your investment. One way to prep for paying a mortgage is by using SmartAsset's mortgage calculator .

Photo credit:  ©iStock.com/katleho Seisa, ©iStock.com/FreshSplash

The post 8 Types of Commercial Real Estate Investments appeared first on SmartReads by SmartAsset .