Americans have been hearing a lot about real estate since late 2007 when the economy began its “Great Recession,” largely due to the mortgage bubble bursting. But there’s more to real estate than houses and housing crises. Real estate also refers to commercial properties, that is, property used by business for profit.
What is Commercial Real Estate?
Commercial real estate is often overlooked, especially by those who don’t run a business. But once you think about how crucial it is for a business to choose the right property in the right location, it’s easy to see how important commercial real estate is.
For instance, certain cities have staggering property investment prices. New York City is ranked the number one city for global property investment, with 7% of the market share. This is because New York City is an exceptionally high-volume, commercially robust part of the country and the world. While it might cost a business quite a bit more to land some property in New York City, their potential return on investment is much higher than in less commercial areas.
How Does Commercial Real Estate Differ from Residential?
Commercial real estate, or business real estate, is different from residential real estate in a few ways. The most obvious is that commercial real estate is for business while residential real estate (homes) is for people. Beyond this obvious distinction, the appraisal process is much different when it comes to commercial vs. residential real estate. Real estate appraisal is the process of determining the value of a property (its market value).
The reason appraisals differ for commercial real estate is due to many factors. For one thing, property for commercial use can be used in many ways, such as storage, storefronts, offices, and more. Additionally, commercial property is by its very nature more public than private property, so the value of commercial real estate is more susceptible to wide fluctuations. For instance, criminal activity in a mall might suddenly decrease the property value of the building. In general, there is more that goes into an inspection of commercial property.
Commercial property valuation is also largely determined by the profits made by using said property. In other words, real estate investments in commercial property are often higher than those in residential spaces because commercial real estate is expected to produce income.
How to Buy Commercial Real Estate
In today’s economy it can be risky business investing in commercial real estate. It can be difficult to determine with certainty which location is or is not worth the investment. Therefore, a small business would be wise to hire a real estate professional before attempting to lock down a deal for a new space. Some other useful people to have in close contact would be a lawyer, an accountant, and a mortgage broker. Collectively, this team of experts will help one determine the value of a property, whether or not the property itself or its location are worthwhile investments, and how to go about the legal paperwork for signing a deal once a decision is made.
It’s important for businesses both large and small to know about commercial real estate. Even in today’s turbulent economy it is an important and often advantageous investment, if one isn’t too hasty or foolish.