Commercial Real Estate (CRE)

What is commercial real estate?

Commercial real estate is generally defined as the ownership of land and structures used for commercial purposes. Commercial properties are considered investments and can be divided into four main categories: retail, office space, medical facilities, and industrial.

This could include office spaces, medical centres, hotels, malls, retail stores, farmland, multifamily housing buildings, warehouses, and garages.

The key objective of CRE

The key objective of CRE is income generation and the industry manoeuvres for the same. In business parlance, one can define commercial spaces as shops, malls, offices, industries, retail, hospitality, and the medical industry used for income generation. One earns through a lease enforced on tenants who utilise the space for their business. CRE encompasses many real estate properties, from small stores to big shopping complexes and office skyscrapers.

Office, retail, multifamily rentals, industrial spaces are some of the few areas under the commercial real estate industries. However, other properties are get branded into it. It delivers supplementary capital appreciation other than mere income, which adds to the industry’s immense growth. Commercial real estate demands more investment prerequisites than residential real estate. Ordinary real estate investors can be involved indirectly in CRE through a publicly-traded real estate investment trust (REITs).

In the commercial industry, properties are often leased to tenants, who prefer to rent rather than buy the operative space. These properties are either owned by a group of investors or a single investor.

Length of the Lease

The length of the lease can be monthly or annually. The lease is from one year to 10 years and retail for 5 to 10 years in usual circumstances. Leases are divided into four categories:

Single net lease

This makes tenants obliged to pay property taxes.

Double net lease

Tenants need to pay property taxes and insurance.

Triple net lease

Tenants need to pay property taxes, insurance, and maintenance fees in this category.

Gross lease

Tenants only pay rent in a gross lease. The investor must pay all other property taxes, insurance, and maintenance.

Outlook from 2022

As the pandemic sweeps across countries, it has also impacted the CRE industry. In 2021, CRE strategies will be digitalised and automated to cope with the lockdown and other health crises. Since the economy is contracting, the macro landscape of CRE remains in the downturn. However, there is a sharp contract created between real estate properties, for instance, the dichotomy between the medical sector that has been positively impacted and the negatively affected retail industries. However, CRE investors hope to recover from the flat curve from 2022 by using more digitalisation.