The term commercial property refers to “buildings or land intended to generate a profit, either from capital gain or rental income.”
Land is a popular investment as it appeals to a wide variety of buyers. Commercial land has the capability of being held (often referred to as land banking), divided, subdivided or developed to a variety of uses. Land leases (also known as ground lease) common for agricultural uses, billboard advertising signs, or for development of retail, restaurant, office, hotel, or other commercial uses. Some important factors to consider when purchasing land are size, zoning, and locational characteristics.
Retail properties are often freestanding (single-tenant), i.e, restaurants, banks, or single tenant retail buildings. Additional types of retail properties include strip center, neighborhood centers, community centers, and power centers, and others. Business owners can pinpoint their ideal retail space from any of these options, but investors will be drawn to malls and retail centers, which have numerous tenants, and greater synergy.
Strip/Convenience Centers typically consist of an attached row of stores or service outlets managed as a coherent retail entity, with on-site parking usually located in front of the stores. Open canopies may connect the store fronts, but a strip center does not have enclosed walkways linking the stores. A strip center may be configured in a straight line, or have an “L” or “U” shape. A strip/convenience center is among the smallest of the retail centers, and their tenants provide a narrow mix of goods and personal services to a small trade area.
Neighborhood Centers typically range in size from 30,000 to 125,000 square feet and are commonly anchored by a supermarket and includes 5 to 20 stores.
Community Center typically range in size from 125,000 to 400,000 square feet, and average about 200,000 square feet. Similar to a strip center, these centers are usually configured in a straight line, but may be laid out in an L or U shape, depending on the site and design. Typical anchor tenants include a discount store, supermarket, drug, large-specialty discount (toys, books, electronics, home improvement/furnishings or sporting goods, etc.) and these centers usually include 10 to 40 tenants. The trade area for this type of property is usually 3 to 6 miles.
Regional Malls vary in size from 400,000 to 800,000 square feet, and average approximately 590,000 square feet. Malls are typically, enclosed with inward-facing stores connected by a common walkway. Parking surrounds the outside perimeter. A typical anchor tenants are full-line or junior department stores, mass merchants, discount department stores and/or fashion apparel stores. The trade area for a regional mall is 5 to 10 miles.
Office buildings are either multi-tenant or single-tenant properties. A single- tenant properties appeal to owner-users, and with a strong tenant, also appeal to investors. Multi-tenant properties typically appeal to investment buyers. Office buildings are classified into three categories: Class A, Class B, or Class C.
Class A buildings are often newer buildings with state-of-the-art infrastructure, but may be old buildings that have been extensively renovated. Class A buildings are usually in prime locations with good access, and are professionally managed.
Class B buildings are often targeted by investors, because while they may be older, they have the potential for a high return on investment through renovation and improvements. These buildings are typically well-maintained and well-managed.
Class C buildings are low cost structures or older buildings in need of extensive renovation and updates. These properties often have interior locations and typically have lower rental rates to compensate for the quality and locational characteristics.
Industrial properties range in size from smaller properties that are often referred to as “flex” space or “R&D” properties; to large warehouses; heavy manufacturing facilities, and distribution warehouses. Important characteristics to a warehouse property includes location (freeway or rail access), clear height (the height from the floor to the lowest-hanging overhead obstruction, which can range from 12 feet in a small building to more than 40 feet in a large industrial space), number of roll up doors (grade level or dock height), and column spacing. Businesses seeking industrial space also consider dock types and yard area. Grade level docks are at street level for drive-in convenience; semi-docks are 24″ for a pickup or delivery truck; and dock height is 48 inches to accommodate big rigs and semi-trucks.
Some industrial spaces lend themselves more to investment opportunities. Heavy manufacturing properties are very specialized with machinery, and cannot be easily transformed for another use. These properties often house a single tenant, making them unattractive to investment buyers. Bulk warehouse properties are also fairly specialized, and not easy to reconfigure to other uses. On the other hand, light assembly industrial space can easily be converted to office space or another commercial uses. Flex-warehouse properties can also be easily reconfigured, and often provide a mix of warehouse and office space.
Multi-family development ranging from a fourplex to a larger scale apartment development appeal to a wide range of investors. Leases on multi-family structures are typically one-year or less, which are considered a short–term leases.
Garden apartments were popular throughout the country in the 60’s and 70’s. These developments typically include three to four-story structures without elevators and with surface parking. Midrise apartment projects are those between 5 to 9 stories with an elevator service, often found in urban infill areas. High-rise apartment developments generally have more than 100 units, and are professionally managed.
There are a wide variety of hotels in the market, including budget, limited services, full service, and extended stay. Hotels also vary in size, amenities (restaurant, conference room, fitness room, etc.), and ownership (hotel chain or independent). These variations can drastically affect the income potential and expenses of the property. A motel is a roadside hotel designed primarily for motorists, typically having the rooms arranged in a low building with parking directly outside.
Special Use Properties
Special use properties are properties that are atypical in the marketplace, such as landfills, amusement parks, assisted living facilities, RV parks, golf courses, etc.
There are a wide variety of properties that appeal to both investors and owner-users. When considering a purchase of commercial real estate, it is important to choose a broker or agent who is knowledgeable about the types of property you are considering as well as the market. SVN | SouthLand Commercial not only has brokers with extensive local knowledge, but the cooperate backing of one of the most successful commercial real estate companies in the industry. Click Here to find a SouthLand Advisor that can help you with your commercial real estate questions.
Wikipedia, ICSC, CoStar Realty Information
About the Author
Lisa is a native of California and moved to Pensacola in 2002. She began her real estate career as a Certified General Commercial Real Estate Appraiser and has over 15 years of commercial appraisal experience along the Gulf Coast of Florida and Alabama. Lisa is experienced in typical investment properties, including raw land, subdivisions, apartment properties, mobile home parks; hotel, office, and restaurant, retail, and industrial properties. In addition, she is experienced in complex and special use properties, including water parks, borrow pits, and marinas. Lisa joined SVN | SouthLand Commercial with unique expertise that have assisted her in meeting the goals of her clients in both the sales and leasing of a variety of investment properties. To view Lisa’s listings, click here.