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What is Commercial Real Estate?

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  • Written By: Jim B.
  • Edited By: Jenn Walker
  • Last Modified Date: 20 September 2016
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Commercial real estate loosely refers to any piece of land that is purchased with the intent of making money on the property. Since this broad definition can also include real estate used for industrial production and apartment complexes, the only real estate essentially excluded from this category are residential homes. Most commonly, commercial real estate is used for malls, office buildings, restaurants, hotels, and any property on which the owner expects to earn income. It can also include vacant land which has the potential to hold a moneymaking property.

Real estate can be broken down simply into the two main categories of residential and commercial. Residential real estate includes homes that are built solely for the purpose of housing an individual or a family. Commercial real estate includes everything else, although sometimes apartment complexes or industrial buildings such as factories are labeled as residential. In short, if someone buys a piece of land or a property and attempts to make income off that property, then it considered commercial.

Within the category of what constitutes commercial real estate, there are several smaller divisions. Retail real estate is the biggest portion of the commercial category, as it includes everything from hotels to malls and shopping centers to buildings used for medical centers and much more. Office real estate incorporates office buildings that can hold either one or multiple businesses. In this case, the owner of the building gains profit from rent paid by the individual businesses within the building.

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The final two categories fall somewhere between residential and commercial real estate. Industrial real estate includes industrial properties such as factories, warehouses, and garages, but also may include farmland and the homes included on that land that serve as residences for the owners. As for multifamily housing, which obviously serves as residences for the families involved, this may also be included under the commercial umbrella, depending on the laws of the jurisdiction.

In many cases, the ability to call something commercial real estate depends on the intent of the buyer and the location, especially in the case of a vacant piece of land. For example, a vacant lot that's near a bunch of retail stores and restaurants would most likely be purchased by someone with the intent of turning it into some sort of commercial venture. On the other hand, uninhabited land that's near a neighborhood full of single-family homes most likely would be used for residential purposes.

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