What You Need to Know
About Commercial Real Estate
Commercial real estate refers to buildings used for commercial purposes, such as warehouses and malls. Here are four things you need to know about commercial real estate.
Building Classifications
Buildings used for commercial purposes are divided into a few different classifications. The largest classification is between large and small buildings. Generally, large buildings are prime real estate, such as high-rise office buildings, valued at over $2.5 million and small buildings, such as convenience stores, are valued below that price. Another way to classify commercial real estate is by what the building will be used for. This division uses three categories—A, B and C. A refers to new, high-end buildings in attractive locations. B refers to average properties, which might be older or smaller than class A spaces. C refers to older buildings in less attractive locations. These buildings may require extensive remodeling or repairs, which may help upgrade them to class B.
Concessions
Like any transactional market, commercial real estate involves negotiations and concessions. These tend to be discussed and agreed to on or before the signing of a lease. Generally, the renter cannot renegotiate until the time comes to renew the lease, but the landlord may be legally permitted to revoke a concession if a renter defaults or otherwise breaks a lease. Common concessions include tenant improvement allowances and reduced escalations, among other things.
Types of Square Footage
There are two different types of square footage designations in commercial real estate—rentable and usable. Rentable square footage is the total area of the property, including spaces that may be shared by multiple renters, such as hallways and lobbies. Usable floor space, by contrast, is the space occupied by one renter. It doesn’t include communal areas unless the renter leases an entire floor, in which case spaces on that floor, such as restrooms, would be counted as usable square footage.
Current Trends
Industry professionals such as Paul Daneshrad know the importance of staying abreast of current trends in commercial real estate. Like any other industry, real estate has its ups and downs, depending on the robustness of the economy. In periods of economic stability or growth, commercial real estate tends to do well while in periods of recession, it will typically experience a downward trend later than other parts of the market. The current commercial real estate market trends toward necessary buildings such as cold storage warehouses, due to the needs of the Covid-19 pandemic response.
As time goes on and trends change, other aspects of commercial real estate, such as building classifications, tend to remain stable.
