What Is Commercial Real Estate?

Commercial real estate (CRE) is any property used for business purposes. But that is a simple definition of CRE, as the field encompasses many asset classes, which are the types of CRE that we categorize properties into. The U.S. commercial real estate market is worth as much as $1.75 trillion, according to Mordor Intelligence, and is expected to reach $2 trillion by 2031. 

CRE is also defined as income-producing assets, owned by entities like private equity and real estate investment trusts (REITs). Besides ownership, the CRE industry includes business in roles like developers, builders, property managers, leasing agencies and even materials suppliers and service providers. 

Biscred, for example, uses 24 asset classes, roughly 30 industry classifications, and more than 20 functional areas (such as acquisitions, HR, leasing, and technology). The rest of this guide explains the main types of CRE, key characteristics and how CRE ownership is structured.   

What Are the Main Types of CRE? 

The four most common CRE asset classes are:

• Office: property intended for business operation/management

• Industrial: property built for businesses to manufacture, store, produce, or distribute goods

• Multifamily: residential housing with multiple units in a single property

• Retail: commercial spaces for goods and services to be sold to customers

But this doesn’t even begin to encompass all of the different potential business operations that can happen in real estate. Biscred has identified 24 asset classes. Each asset class has its own niche requirements to support business and works with its own servicers. 

In terms of asset class types from the lens of zoning, you can learn more about commercial building classes here. This separate guide covers the differences between Class A, B, and C. 

As a quick aside, zoning is a term used by cities and local governments to classify how property is used. Zoning is very important for a city’s structure, as it determines land organization and supports sustainable city growth. Learn more about zoning in this separate post. 

What Are the Key Characteristics of CRE? 

To give some extra insight into commercial real estate and how cash flow works in the industry, we’ll cover three key characteristics of CRE: income-driven, commercial leases, and operations costs.  

Income-driven

Owners and investors view commercial property as an investment in their portfolio. They invest money up front to accrue value over time. This value, in the form of income, comes from:

• Leasing space to tenants

• Property appreciating in value, eventually yielding profit during a sale

• Purchasing undervalued or outdated property and developing it into a more profitable asset

There’s an entire industry within CRE that assesses and develops properties to maximize profitability for investors. CRE can fit into investment portfolios in many ways. Property development may be a riskier investment, while owning a warehouse or distribution center is a less risky, but less profitable, investment. 

Commercial leases

A commercial lease is not structured the same way a resident may sign a lease. It can be more complex, sometimes involving the property owner offloading operating expenses, insurance, or property taxes onto a tenant. Learn more about the 4 types of commercial leases.

Commercial leasing is also usually long-term, not just year-to-year. Businesses usually operate in a space for multiple years, which makes investing in this type of commercial property less risky than development-oriented investments, if not as lucrative. 

Operation costs

The operational expenses of a property — or the overhead costs — to lease out a property, depend on the type of CRE. Real estate assets include property taxes as part of their operating costs, which vary from state to state. They also incur insurance and maintenance expenses. Learn more about the most common building operating expenses. 

Operating expenses have to be balanced against a property’s depreciation and gross revenue so that CRE can turn a profit. Operating expenses are sometimes calculated by square foot, measuring the rentable area against the operating expense cost. 

Who Owns Commercial Real Estate? 

Commercial real estate rarely has a single owner like residential real estate does. Because of the management expertise needed to operate CRE and manage commercial assets, you’ll commonly find that commercial real estate has an ownership structure that involves multiple parties. 

We explain more about CRE owners and investors in a separate post, but here’s an overview of who might own commercial real estate:

• Real estate investment trusts (REITs) are either publicly or privately owned organizations structured similarly to mutual funds. They own and manage real estate in their portfolio, investing in a swath of riskier ventures and hedging with less-risky income-producing property.

• Real estate investment funds (REIFs) pool together multiple REITs in a structure similar to a mutual fund. They invest in strictly real estate trusts, but don’t operate the properties. 

• Private equity, or investment firms that represent a limited pool of investors, sometimes acquire, develop, and manage commercial property. 

• Corporations may purchase and develop property that they operate out of to have more control over how the space is used. 

• Governments own commercial real estate to support certain public services or operations. A government-owned property will sometimes lease out space to private entities. 

FAQs About Commercial Real Estate

What does CRE stand for?

CRE stands for commercial real estate, which is defined as property, whether developed or undeveloped, that is used for business or income-producing purposes.

What counts as commercial real estate? 

Any property used or zoned for business or income-producing purposes is considered commercial real estate, including developed buildings, vacant land, and even parking structures. 

What’s the difference between commercial and residential real estate? 

Commercial real estate is used for generating revenue, whereas residential real estate is intended for living. This definition gets a bit more complex when it comes to multifamily CRE, which houses families but is income-producing for the owner in the form of rent. If a piece of residential real estate has more than four units, it’s considered commercial property. 

What are the main asset classes in CRE?

The four main asset class types in CRE are: multifamily, industrial, retail, and office. These are additional CRE asset classes: affordable housing, aviation, communication, data center, education, energy, entertainment facilities, government, healthcare, hospitality, infrastructure, land, life sciences, mixed use, parking, railroad, self storage, senior living, student housing, and sustainable energy.

What is a commercial real estate developer?

A commercial real estate developer works with an owner or owners to plan the construction and changes necessary for a piece of CRE to be profitable. This can include helping to develop the strategy behind how a piece of CRE is used, as well as the architecture and build-out of the space. Developing CRE requires upfront capital, and ideally it leads to long-term profitability.

How can I find out who owns CRE property?

If you want to find out who owns a specific CRE property, you can check public records with the county assessor’s office. Learn more about finding CRE property owners and contacts in this post.