What Is Commercial Real Estate (CRE)? 

Commercial real estate (CRE) is property that is used exclusively for business-related purposes or to provide a workspace other than as a living space, which would constitute residential real estate. Commercial real estate is leased to tenants to conduct income-generating activities. This broad category of real estate can include everything from from a single storefront to a shopping center. Commercial real estate includes several categories, like retailers of all kinds, office space, hotels & resorts, strip malls, restaurants, and healthcare facilities.

KEY Points

• Commercial real estate refers to properties used specifically for business or income-generating purposes.
• The four main classes of commercial real estate include: office space; industrial; multi-family rentals and retail.
• Commercial real estate provides rental income as well as the potential some capital appreciation for investors.
• Investing in commercial real estate requires more knowledge capital from investors as residential real estate.
• Publicly traded real estate investment trusts (REITs) are a feasible way for individuals to indirectly invest in commercial real estate.

Basics of Commercial Real Estate 

Commercial real estate along with residential real estate comprise the two primary categories of real estate property. Residential properties include structures reserved for human habitation and not for commercial or industrial use. As it implies, commercial real estate is used in commerce and multi-unit rental properties that serve as residences for tenants are classified as commercial activity for the landlord.

Commercial real estate is categorized into four classes, depending on their function:

1. Office space
2. Industrial use
3. Multi-family rental
4. Retail

Individual categories may be further classified. Office space, is often characterized as class A, class B or class C.

• Class A represents the best buildings in terms of aesthetics, age, quality of infrastructure, and location.
• Class B buildings are older and not as competitive—price-wise—as Class A buildings. Investors often target these buildings for restoration. (Value Add)
• Class C buildings are the oldest, over 20 years of age, located in less attractive areas and need for maintenance.

Note that some zoning and licensing authorities break out industrial property sites used for the manufacture and production of goods, especially heavy goods, but consider it as a subset of commercial real estate.