As real estate investors transition from a single-family residential focus into commercial investing, they often ask,

What type of commercial real estate should I include in my portfolio?

This is a great question, and for all investors - new and experienced - understanding the different asset classes under the commercial real estate umbrella significantly expands investment opportunities.

In this article, we’ll discuss the following six major options for investing in commercial real estate:

● Option 1: Multi-family

● Option 2: Office Space

● Option 3: Industrial

● Option 4: Medical

● Option 5: Hospitality

● Option 6: Retail

Option 1: Multi-family

As the name suggests, multi-family commercial real estate includes residential properties that house more than one family. For new commercial real estate investors, multi-family can be a great bridge from residential investing, as your properties will have the same sorts of tenants.

Additionally, multi-family properties have the inherent cash-flow advantage of not being all-or-nothing. In other words, if one tenant moves out, it likely won’t crush your NOI, as the rent from other units helps offset the new vacancy.

Here are the major types of multi-family properties:

● “Plexes” (duplex, triplex, and quadplex)

● Garden apartments

● Mid-rise apartments

● High-rise apartments

● Student housing / dorms

● Senior and assisted-living

Local commercial real estate professionals can help you find great multi-family investment opportunities in your market - need help finding reliable ones in your area? Drop us a note!

Option 2: Office Space

Office space comprises the next major commercial real estate asset class.

And, similar to multi-family housing, investing in office space provides an inherent cash-flow hedge, as these properties typically include multiple tenants that can partially offset the NOI hit of a vacancy.

Depending on the age, quality, and location of a particular office space, investors further classify these spaces as Class A (newest, highest-quality, best location), Class B (mid-range), and Class C (oldest, in need of repairs, less desirable location).

Major types of office space include:

● Central business district (CBD) properties

● Commercially zoned houses

● Suburban office buildings

Option 3: Industrial

Whereas office and multi-family properties have fairly uniform uses, industrial space varies widely in terms of both size and location.

As an investment opportunity, industrial spaces offer some of the most reliable tenants, as these properties’ nature creates little incentive for a tenant to move once established in a space.

Furthermore, in the economic cycle following the Great Recession - and particularly the COVID-19 era - the exponential growth of delivery services has coincided with a boom in this sort of commercial real estate.

Across the industrial spectrum, major categories include:

● Bulk warehouses

● Flex-space (part office, part industrial)

● Heavy manufacturing

● Light assembly

● Refrigeration / cold-storage warehouses

● Showrooms (hybrid office, warehouse, and retail)

● Storage

Option 4: Medical

These properties include any space built around the needs of the medical profession, so the category proves fairly diverse.

The stability of medical properties makes it some of the most valuable commercial real estate available for investment opportunities. Simply put, people will always need medical treatment, and there’s not a tremendous advantage to relocating for medical service providers once established in a given property.

And, the unique build-outs required for medical tenants (e.g. larger elevators, lead-lined walls, increased plumbing capacity, etc) do not make relocating an easy task, leading to standard leases from 8 to 10+ years.

Here are some of the major types of medical properties:

● Local doctor and dentist offices

● Out-patient surgery centers

● In-patient surgery centers

● Urgent care clinics

● Major hospitals

Investing in medical properties can be a recession-resistant addition to your commercial portfolio, so please drop us a note for help developing a tailored investment strategy.

Option 5: Hospitality

Typically designed around the needs of travelers, hospitality-specific properties serve both business and pleasure purposes.

Additionally, hospitality properties can include theme parks and amusement parks, but the asset class typically entails some form of lodging.

From an investment perspective, hospitality generally correlates highly with economic cycles, that is, these properties’ performance tends to mirror the broader economy, for better or worse.

Major categories of hospitality properties include:

● Budget hotels

● Extended-stay / long-term hotels

● Full-service hotels

● Limited-service hotels

● Short-term rentals (e.g. AirBnB or VRBO)

Option 6: Retail

Retail entails the final major category of commercial real estate we’ll discuss. This asset class includes any space designed for tenants who sell products or services directly to consumers.

From a location perspective, the consumer-centric nature of retail means these properties are located to maximize convenience for consumers.

For investors, some types of retail real estate may, in fact, be dead due to the proliferation of online delivery services. However, certain retail businesses inherently hedge against online delivery, as many beauty, entertainment, and experience-based services simply cannot be replaced by online ordering.

Like its industrial real estate counterparts, retail space can dramatically vary in size and purpose, as demonstrated by the following list of major retail types:

● Community retail centers

● Outparcel / stand-alone

● Power / anchor center (anchored by a major regional retailer)

● Regional malls

● Strip malls

● Neighborhood shopping centers

---

We recognize that, even after outlining the above information, moving into the commercial real estate investing realm can seem daunting.

That’s why we’re here to help. The Pocket Broker team lives and breathes commercial real estate, so drop us a note to see how we can help you achieve your unique

Investing in Commercial Real Estate | 6 Great Options