Commercial properties are properties that are used exclusively for business-related activities. It often refers to buildings and other developments that contain stores and offices. It can also refer to land that is being used to generate profit, as well as residential properties.
Designating a development as a commercial property comes with implications on taxation, financing, and laws applying to it.
Commercial and Investment Properties
Commercial properties include the following developments:
- Office buildings
- Grocery stores
- Manufacturing shops
- Multi-family properties
- Gas stations
A commercial building’s performance, including occupancy rates, new building rates, and sales price, is often used to gauge business activity in a particular region or economy.
While some businesses own their space, more often than not an investor owns the property and collects rent from the businesses that operate within it. Lease rates can be quoted in a monthly rent or an annual sum, though commercial properties are traditionally quoted in annual rental dollars per
Leases can last from a year to up to 10 years and more. Lease agreements for retail and office spaces last from five to 10 years on average. Larger tenants often have longer leases.
Commercial real estate, particularly office space, can be classified into three categories:
- Class A – This includes the most desirable buildings in terms of design, location, age, and quality of infrastructure.
- Class B – These buildings are often older and not as Class A buildings in terms of price. Investors often seek out these buildings for restoration projects.
- Class C – These buildings are typically more than 20 years of age. These are located in less desirable areas and in need of maintenance.
Why Invest in Commercial Properties?
Commercial real estate has long been seen as a sound investment. The initial costs of investing in a commercial building and customizing the space for tenants are generally much higher than the initial costs of investing in a residential real estate.
However, the returns are much higher overall, and some of the nuisances that come with having tenants aren’t present since there are clear leases and a company to enforce them. The returns on the commercial real estate are also attractive in comparison with alternatives like bonds, stocks, and gold.
The National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index is one of benchmark for measuring the performance of a group of
commercial properties in the private market. It measures the performance of a massive pool of individual commercial real properties on an unleveraged basis.
Moreover, commercial real estate investments are structured to bring in steady cash flow by way dividends that can be distributed to investors on a monthly, quarterly, or annual basis. Renting out space to profitable businesses on longterm leases will help you generate income.
Investors tend to have more control over the terms of the lease. Pricing considerations are also straightforward. While a residential property investor has to take the emotional appeal of the property into consideration, commercial property investor can refer to the income statement showing the true value of current leases, which can be compared to the capitalization rate for other commercial properties within the vicinity.
If you want to explore North Carolina commercial real estate, let the Pat Allen Realty Group assist you. Call us at 828-526-8784 or send us a message here.