Types of Commercial Buildings

There are 4 main categories of commercial properties:

1. Office
2. Industrial
3. Retail
4. Multi-family

Let’s explore these one by one. 

Office

Office buildings are classified into Class A, Class B, and Class C.  Class A properties are the most modern, and demand the highest rents.  The skyscrapers downtown are generally considered Class A office buildings.  Class B and C properties are generally older, not as functional, and command lower rents as a result. 

Office buildings are also categorized into low-rise, mid-rise, and high-rise.  Starting from ground level, 6 stories or less are considered low-rise, 7 to 25 stories are considered mid-rise, and 26 or more stories are considered high-rise. 

Industrial

Industrial properties may contain office or storage space, and are divided into several categories:

• Bulk: the simplest of all industrial properties.  May contain not much more than 4 walls, a roof, and floor.  Bulk properties are many times used for storage, and the tenants are concerned with not just the square footage but also the height.  Rent may be calculated in terms of cubic feet rather than square feet. 
• Office/Warehouse: this simply a combination of a warehouse with some office space.  Good highway access is important to these tenants.
• Office/Service: these properties are more expensive, and located in park-like settings with landscaping. 
• Research and Development: these properties have special requirements such as clean rooms for research and manufacturing.  Often located near universities, these properties command very high rents and the tenants tend to make many improvements. 
• Freestanding: these properties are generally designed by an owner/user for a specific purpose, and vary widely in their function and appearance.
• Multi-Tenant: Multi-tenant properties attract tenants that need the smallest space – usually between 1,000 to 5,000 square feet.  A good example is a strip mall complex where every tenant provides some kind of auto repair service such as a body shop, mechanical auto repair, glass and windshield repair etc. 
• Large Manufacturing: these properties are radically modified by the tenant to fit a major production process, and are prone to functional obsolescence. 
• Industrial Parks: industrial parks are planned developments that are controlled and administered by one person or investment group such as a REIT. 

Retail

Retail properties are designed for the tenants to sell goods and services.  The general categories include:

• Commercial Strip Properties: the strips are generally small, unanchored, and offer a variety of products and services.
• Neighborhood Centers: they fulfill the shopping needs of the neighborhood, and are generally anchored by a supermarket or drug store. 
• Community Centers: community centers are larger than neighborhood centers, and sell a wider range of products that can include electronics, apparels, sporting goods, and home-improvement goods. 
• Regional Centers: regional centers are even larger than community centers, and are thought of as shopping malls.  The majority of tenants sell apparels. 
• Super-Regional Centers: think of these as giant shopping malls that have multiple levels. 
• Freestanding Stores: occupied by only one tenant, a freestanding store can be a furniture store or a large retailer such as Wal-Mart or Home Depot. 
• Fashion/Specialty Centers: these centers are composed of high-end specialty shops and boutiques, and are found in high-income areas.  A good example of a fashion/specialty center in Seattle is the University Village. 
• Theme/Festival Centers: designed around a theme, these centers are found in theme parks and tourist areas.  Many of the casinos in Las Vegas have themed shopping areas within them. 
• Outlet Center: located in rural and sometimes tourist areas, these are the manufacturers selling their brands at a discount.

Multi-Family

Any residential dwelling units or apartment buildings with 5 or more units are considered commercial property.  Multi-family properties tend to experience lower vacancy rates than the other types of commercial property, because businesses can shut down when the economy is not doing well, but people always need a place to live. 

The disadvantages of multi-family properties include the lack of long-term leases that are typical in office, industrial, and retail properties.  Also, the landlords of multi-family properties are responsible for much of the operating expenses such as water, sewer, garbage, taxes, insurance, and common area maintenance, while many of these expenses are the responsibility of the tenants in office, industrial, and retail properties.