The Top 8 Types of Commercial Property for Savvy Investors to Consider

Commercial real estate represents an asset class full of potential for diversified returns. Beyond residential housing, many types of commercial property can generate stable income and appreciate over time. Here are 8 major commercial asset categories that smart investors evaluate when constructing a balanced portfolio.

Retail Spaces – Consumer Traffic Drives Leasing Demand

Retail properties like shopping malls, big box stores, restaurants, and shops produce income from tenant rents. High foot traffic and consumer spending makes retail space very desirable. Though e-commerce is disrupting traditional retail, well-located spaces in vibrant communities will continue seeing leasing demand. Net rental yields typically range from 6-8%.

Office Buildings – Reliable Tenants, Long Leases

Offices spaces are a core commercial property type, featuring creditworthy tenants and long 3-10 year leases. Law firms, financial companies, corporate tenants sign on for Class A spaces in central business districts. Medical and tech offices choose suburban locales. Net rental yields historically average 5-7% for office assets.

Industrial Warehouses – Surging E-Commerce Logistics Growth

Warehouses and distribution centers are critical logistics infrastructure for e-commerce and supply chain operations. Tenants like Amazon need facilities in strategic locations close to customers and transport hubs. Demand has skyrocketed with online spending, driving rents higher especially for modern spaces. Yields today often exceed 8%.

Hospitality – Guest Traffic Renewing Post-Pandemic

Hospitality assets like hotels and resorts produce income from room rentals, conventions, food & beverage sales. Revenues plunged during COVID shutdowns but are rebounding as travel normalizes. Well-located properties in popular leisure destinations will continue seeing high guest demand over the long run.

Multi-Family Housing – Constant Renter Demand

Apartment complexes and rental housing cater to a wide demographic from young professionals to families and seniors. Tenants rent via shorter leases versus buying housing. Strong occupancy plus rental growth has made apartments a top-performing asset class with 6-10% average annual returns.

Self-Storage – Leveraging America’s Clutter Surplus

Self storage facilities monetize extra space for personal and business use. Customers access units on-demand for short or long-term needs. Once stabilized after lease-up, facilities easily maintain 95%+ occupancy. This hands-off investment has yielded around 9% historically.

Senior Housing – Growing Market with Healthcare Needs

Assisted living facilities, nursing homes, and independent senior housing meet the needs of an aging population. By 2030 over 20% of U.S. residents will be 65+, fueling demand for appropriate housing and care options. Investors can target private-pay or Medicaid/Medicare subsidized housing models.

Mixed-Use Properties – Combining Residential-Retail-Office

Projects that blend 2+ property types together like retail with residential or office spaces allow for cross-utilization. Mixed-use assets located in amenity-rich, high-density areas see strong leasing interest. Investors can tap multiple property revenues while sharing operating costs.

Industrial Space Rent’s Surging With E-Commerce Growth

The ongoing boom in e-commerce and supply chain activity is driving massive demand for industrial warehouses globally. In the U.S., net absorption of industrial space hit 604 million square feet in 2021 according to CBRE – a new record high. Warehouse rental’s grew nearly 10% in 2021 as vacancy fell to record low’s. Prologis predict’s logistics real estate demand to outpace supply for year’s, noting robust growth in Europe and Asia too. With consumers shifting online, retailer’s and 3PL’s continues aggressively leasing warehouse capacity.

Office Demand Remain’s Strong in Major Global Market’s

Despite remote work trend’s, major office market’s are seeing persistent leasing activity reflecting confidence in return to workplace. JLL reported that top U.S. market’s like New York and Silicon Valley experienced strong leasing demand in 2022. And London, Singapore, Sydney and Hong Kong office vacancy is declining as tenant’s renew lease’s. Knight Frank predict’s Asia Pacific office transaction volumes to rise 15% in 2022. Though leasing footprint’s may shrink, prime office space in core urban hub’s remains highly coveted.

Apartment Investment Rising to Meet Housing Need’s

Developer’s are ramping up new apartment construction globally as investor’s pursue multi-family assets. United State’s apartment supply grew over 300,000 units in 2021 reports Yardi Matrix. JLL expect’s U.S. multi-family transaction volume to set new records in 2022. In Europe, residential property investment jumped 66% year-over-year in early 2022 says Knight Frank. Housing affordability issue’s, urbanization, and demographic’s supports continued institutional capital allocation to apartment investment’s.

References:

http://www.epra.com/media/EPRA_Real_estate_in_the_real_economy_infog1_1354797656783.pdf

http://www.investopedia.com/terms/i/investmentrealestate.asp

https://dx.doi.org/10.1111/1540-6229.12228
https://www.cbre.com/research-and-reports/2021-US-Real-Estate-Market-Outlook-Industrial-Logistics
https://www.prologis.com/logistics-industry-research
https://www.jll.com/en/trends-and-insights/research/office-market-statistics-trends
https://www.knightfrank.com/research/article/2022-06-15-global-outlook-q2-2022-activity-starts-to-slow-amid-economic-headwinds
https://www.yardimatrix.com/Research/Reports/Multifamily-National-Report-January-2022
https://www.jll.com/en/trends-and-insights/investor/forecasts/2022-us-real-estate-investment-outlook
https://www.knightfrank.com/research/article/2022-02-17-european-quarterly-residential-markets-q4-2021