9 Types and 3 Classes of Commercial Real Estate

What are the 9 types of commercial real estate?
What are the 3 building class types?

There are nine main types of commercial real estate and the three CRE classes (Classes A, B and C) that are generally accepted in the CRE industry, which we explain in this article. If you are looking to invest in CRE, do business with CRE companies, or simply want to learn more about the commercial real estate industry, these classifications will help you understand how and why the industry classifies buildings in certain ways.

NOTE: This post was first published March 15, 2023. It's been updated to include data from the EIA's commercial building databases.

Commercial buildings by the numbers*

Number of buildings: 6 million
Average square footage per building: 16,300
Commercial floor space in square feet: 96.4 billion

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What Are the 9 Building Class Types for CRE?

Broadly speaking, CRE falls into these eight types, although the EIA categorizes commercial real estate slightly differently. Here is our list, with EIA estimate from 2018, the most recent commercial real estate census data available, where known:

Office buildings (970,000 buildings in the U.S.)
Industrial buildings (1,004,000 warehouses in the U.S.)
Retail buildings (680,000 food sales and mercantile buildings in the U.S.)
Mixed-use buildings
Multi-family
Hotel/hospitality (493,000 food service and lodging in the U.S.)
Land
Special purpose (2,425,000 that includes education, public assembly, service and religious worship)
Life sciences and healthcare (137,000 in the U.S.)

Office buildings

Office buildings include structures that serve a commercial purpose: professional organizations, banks and financial firms, governmental and administrative offices, medical offices that don't perform diagnostic or surgical procedures, coworking spaces, call centers, etc.

The EIA estimates that more the U.S. has more than 16.6 million square feet of office space where 32.8 million people work, and an average of 17,200 square feet per building.

Industrial buildings

Industrial buildings are defined as structures where manufacturing, assembly and warehousing take place.

Logistics facilities are included in the industrial use classification, which includes cross docks, where shipments are received and either picked up by customers or transferred from between transportation companies.

Manufacturing can include light manufacturing, heavy machining, assembly and job shops. Typically industrial buildings have high ceilings, large open spaces to accommodate machinery and equipment, loading docks for receiving and shipping, and specialized electrical and HVAC systems. Industrial buildings are usually located in proximity to shipping routes and transportation hubs, airports, train yards, seaports, and major highways.

The EIA estimates more than 17.5 million square feet of warehouse floor space, employing about 7 million workers, and an average of 17,400 square feet per building.

Retail buildings

This classification of CRE defines commercial properties that are used for consumer trade, such as shopping centers, regional malls, freestanding buildings, and pop-ups. It can also include mixed-use buildings, but we've separated that and go into more detail in the next section.

Examples of retail buildings include freestanding retail, strip malls, regional malls, shopping centers, outlet malls. There are 13 types of retail properties.

EIA estimates there are 11.8 million retail buildings employing more than 24 million people with an average of 105,900 square feet per building.

Mixed-use buildings

Mixed-use buildings are typically two- or three-story buildings where retailers are housed on the ground level, and apartment-style homes are on the upper levels. It's common in urban areas. You might also see a mixed use of hotel and entertainment businesses with residential.

The EIA does not separate mixed use as its own category.

Multifamily dwellings

Although these are residential buildings, multifamily housing is considered commercial real estate because they generate income. A multifamily building can be as small as a duplex and as large as a skyscraper apartment building in Manhattan.

The EIA does not report on multifamily dwellings as commercial real estate.

Hotel and hospitality

Within this category are hotels, motels, convention and conference centers with attached hotels (although those could also be classified in the last section, special use).

EIA estimates that there are more than 8.4 million hospitality structures that employ more than 5.5 million people in the U.S. with an average of 38,500 square feet per building.

Land

Land refers to any type of real estate that doesn't have buildings on it, such as farmland, undeveloped land, vacant lots, brownfields and city infills.

The EIA doesn't collect data on commercial land for its CRE datasets.

Special purpose CRE

This is sort of a catch-all category for commercial real estate that doesn't fall into the other eight categories. It could include sports arenas and stadiums (public assembly), amusement parks, theaters, parks and zoos. The category also includes education buildings, religious worship and EIA's ambiguous "service" category.

EIA estimates that there are more than 34 million building types that fall into this catch-all category, employing about 24 million people, and averaging 105,900 square feet per building.

Life sciences

Buildings in the life sciences category include hospitals, laboratories, and clinics. When it comes to estimating how many life science buildings are in the U.S., there is some blurring between office and healthcare, as well as service and healthcare. The EIA estimates there are more than 4 million healthcare buildings that employ 6.7 million people and average 29,300 square feet per building.

3 Classes of Commercial Real Estate Buildings

What do Class A, Class B and Class C mean in CRE?

Let's start with the definition of "commercial class." Commercial building classes enable planners, builders, and taxing authorities to group buildings based on age, location, finishes, amenities, rental rates, and value.

Commercial real estate is broken down into three main categories: Class A, Class B, and Class C. Each category has specific requirements for the building and space in which it is placed. The classes are determined by value, which depends on the size, location, age, condition and other factors.

What is a Class A building?

Class A commercial real estate includes office space, apartment buildings, retail and even industrial buildings. Luxury and large-scale hotels, restaurants and fashion centers might also fall into Class A.

Class A real estate is typically the most expensive and prestigious type of real estate. It includes office buildings, schools, hospitals, and hotels. Class A properties typically have a high value because of their location and size.

They are the most prestigious in the commercial real estate world and are typically located in high-traffic areas or near major transportation hubs. Class A building definition states it must meet stringent standards for size, design, and construction.

These properties generally have a higher value than other classes, making them more costly to obtain and maintain. Class A properties may be subdivided into two subclasses: prime property and non-prime property.

Prime property refers to commercial buildings that are in excellent condition and have strong tenants. Non-prime property, on the other hand, typically refers to buildings that need renovations or repairs.

What is a Class A building? As you drive through your local metropolitan area, you might notice high-rise buildings with plush amenities like granite floors, outdoor patios for workers, modern office space with high-speed internet, and perhaps even LEED certification, which is an energy-efficient designation. These are likely considered Class A commercial real estate because of their amenities, use and value.

What is Class B property?

Class B properties can include office buildings, office spaces, industrial buildings, hotels and motels, shopping strip malls and retail centers, etc.

Building Class B meaning is defined as real estate containing primarily office, industrial, or retail space. These properties are generally smaller in size than Class A properties and may be located in a more suburban or rural area. Properties classified as Class B generally have lower appraisals (therefore lower price tags) than those in Classes A or C, and they tend to be more affordable for investors.

This class is considered real estate is the second most expensive category and includes properties used for offices, restaurants, hotels, and other similar businesses. Properties in this category tend to be less desirable than those in Class A due to a limited number of high-quality tenants.

What are the differences between Class A vs Class B office space? Class B tends to have lower rents and property values than Class A. This could be because of location, age, and condition. If the building doesn't have modern high-speed internet, for example, it could be considered a Class B.

What does building Class C mean?

Class C includes office buildings, office space, apartment and multifamily buildings, retail, hospitality and more.

Class C properties are smaller than Class A and B properties and typically cater to local businesses or customers who don't need the amenities of a higher-class property. It is the most affordable category and includes properties used for storage, manufacturing, or any other type of business not considered prime or non-prime. Properties in this category are generally older and less well-maintained than those in the other two classes.

That concludes our beginner's guide to understanding CRE classifications. Check out our comprehensive asset class guides for more information on the intricacies of commercial real estate.

Source

*EIA (US Energy Information Administration), Commercial buildings have gotten larger, 2020-12-03 (most recent data available). Accessed 2024-01-26. ID 13960340 | Office © Harperdrewart | Dreamstime.com

9 Building Types, 3 Building Classes with Definitions & Examples