Major Types of Commercial Real Estate Property
New York City’s Zoning Resolution governs every land parcel and building built on it.
The city of New York is divided into three major zoning districts: residential (R), commercial (C), and manufacturing (M). The three core districts are subdivided further to provide for a diverse range of building types and functions.
Zoning districts are identified by a letter and a number. In general, a larger number indicates that a higher density of people or more intense land uses are permitted.
The housing types in Residence Districts range from detached single-family homes in R1 Districts to residential towers in R10 Districts.
Commercial Districts are distinguished by a diverse range of economic activities, ranging from neighborhood retail and services in C1 Districts to regional commercial centers with department stores and movie theaters in C4 Districts to gas stations and auto repair in C8 Districts.
A diverse spectrum of industrial and commercial operations, such as light manufacturing in M1 Districts and heavy manufacturing in M3 Districts, distinguishes Manufacturing Districts.
All properties we are reviewing below are located in Commercial (C) or Manufacturing (M) zoning districts.
Retail properties include the stores and businesses we frequently visit every day.
The most typical types of retail establishments include:
Food and Beverage
Electronics and Appliances
Furniture and Home Improvement
Banking and Financial Services
Retail plazas can be multi-tenant, typically with a primary anchor tenant, who drives traffic to the site, or single-use, mixed-use, or standalone buildings on retail corridors.
Big-box centers, typically with a national chain like Target, Best Buy, or Home Depot, and pad sites are examples of single-tenant structures single-tenant buildings within a shopping center, often a bank, restaurant, or drug store.
The retail sector is complicated since it is economically influenced by various factors, such as size, concept, type, the number of tenants, vehicular and pedestrian traffic, and demographics of an area, which determine the rental rates of a shopping center or a store.
What is the Class of an Office Building?
In New York City, plenty of office spaces are available to rent. Real estate agents utilize the classification system to distinguish between the available properties. Knowing this system can be your hidden weapon for determining the potential benefits of a property and whether it will suit your needs. It can also predict the price range you should expect to rent space in a specific building based on its designation.
There are three tiers in the classification system for office buildings: Class A, B, and C.
Understanding that the classification system is not a national standard is critical. No regulatory organization specifies which requirements a building must meet to be classified as Class A or Class B. Building classification will vary by region in the United States. Building Class in a specific city is determined by what else is available in that market.
As a result, a Class A building in Austin may not be comparable to a Class A building in New York City, and vice versa. It all comes down to knowing your market. In this post, we'll heavily rely on the New York City market to provide concrete instances of the various office space classifications.
Class A Office Space
Class A office space often represents the best on the market. They are usually newly built or recently refurbished structures. Class A office space is outfitted with high-end fixtures, amenities, and cutting-edge technology. You may expect architectural flourishes that separate these Class A buildings from the rest and great lobby space.
Class A buildings are typically maintained by well-known property management companies and are commonly located in prime areas. New York City, and particularly Manhattan, has some of the best office spaces in the world. Class A skyscrapers in New York City will house some of the world's top office spaces. Class A buildings surround you throughout New York York. These gleaming buildings are home to many of the city's most well-known financial, law, and media firms.
Class A buildings command higher rental rates due to their prominent locations and superior looks. The average rent, depending on location, for Class A office buildings in New York City is roughly $79 per square foot and more.
Class B Office Space
Class B office space is the market's next level down. This type of office space satisfies standard requirements. They may be older and lack some more spectacular characteristics of Class A buildings, such as a grand foyer. In truth, some Class B buildings may have started as Class A structures, but age has caused them to be downgraded. They will, however, be well-maintained and fully functional, with the usual variety of services and amenities. Even in New York City's competitive office market, Class B properties can maintain a high level.
Location, property management company, and mechanical systems of these buildings, you can expect to have the standard or somewhat over, depending on your market offering for your city. In New York City, Class B buildings are more likely to be found in Midtown, along roadways, and other outlying areas. As a result, you'll almost certainly end up paying market rent for this building. Class B office space in NYC costs around $72 per square foot and more.
Class C Office Space
Class C office space offers essential functioning office space at reasonable prices. They are generally in less favorable places and are more likely to have older structures. They will lack the flourishes found in Class A or B buildings and may need repair work. Class C buildings may also lack some typical features, such as elevator access or access during off-peak hours. As a result of these disadvantages, rental costs are lower than usual. These structures are frequently the first choice for startup enterprises or smaller organizations.
Understanding the distinctions between office space classifications will assist you in narrowing down your search. Consider renting in a Class A or B building if substantial exposure and impressing clients are crucial to your firm. If keeping overhead and expenditures low is more critical, Class C office space is just what you're searching for.
Most people associate commercial real estate with the types of properties they are most familiar with: offices (where they work) and retail (where they shop). They rarely consider industrial real estate, where the things they use are manufactured and distributed.
However, commercial real estate professionals understand the necessity of industrial space. While purchases for these buildings have not historically been as lucrative as those for premium office and retail property, the unexpected increase in e-commerce in 2020 has led online retailers and groceries to seek new warehouse space and distribution centers, making industrial a desirable commodity. On the other hand, anyone interested in investing or leasing industrial real estate must be an expert.
The base of that knowledge is always a comprehension of the fundamentals.
The following list of the ten most frequent industrial property types in areas zoned for manufacturing.
The word "manufacturing" brings to mind enormous facilities producing items. According to NAIOP, manufacturing sites are where things are created and assembled, and they typically include less than 20% office space, truck loading docks, and clear heights of 10 feet. However, these traits vary greatly depending on their use.
The most popular categories are as follows:
1. Massive manufacturing
These massive facilities often manufacture heavy-duty items and materials. They typically feature tens or even hundreds of thousands of square feet of usable space, heavy machinery, three-phase electrical power, and enough room for trucks to load merchandise. Because the specific machinery inside is frequently adapted to the end user, major industrial plants must be updated when new owners or renters take over.
2. Light assembly
These buildings are typically much smaller and simpler than their larger equivalents. This is because they are used where things are constructed from smaller parts, stored, and subsequently supplied to consumers.
As a result, they are significantly easier to modify for different tenants.
3. Distribution and storage
While manufacturing sites are where products are made, these properties focus on how products are moved and supplied to end users.. Size varies greatly depending on the property type, but these facilities are typically 20% office space at a maximum. Here are three examples:
4. Distribution center
These warehouses are primarily used to ship products. Hence location is essential. Suppose you want to get your items anyplace in the country, preferably near an airport, port, and road access. The size of the occupying enterprise can influence this.
Amazon, for example, has multiple custom-built, high-tech fulfillment centers across the country (which is why it offers same-day delivery in so many locations), some of which are more than 1 million square feet in size.
5. All-purpose warehouses
These warehouses are designed for storage rather than distribution. This distinction might manifest itself in a variety of ways. Most general-purpose warehouses, for example, have a lower door-to-square-foot-age ratio since products aren't transported more frequently. Location is less important than what's stored there. Cold storage facilities, for example, are a subset of general-purpose warehouses equipped with freezers and typically used to store perishable food goods.
6. Truck Terminals
Truck terminals are exclusively dedicated to transportation and are at the opposite extreme of the spectrum from general-purpose warehouses. They merely transfer points for commodities from one vehicle to another, with little or no storage room.
7. Flexible Spaces
Flex properties are meant to provide tenants with flexibility in usage and typically contain at least 30% office space. However, there are more specialized sorts of flex buildings that satisfy more specific industrial tenants' needs.
R&D stands for research and development, the process by which businesses produce new products and improve on old ones. R&D properties vary greatly based on the tenant and the purpose of the property. For example, Google's upcoming self-driving car project site will be 53,000 square feet, with significant open interior places to test self-driving cars away from prying eyes. They will operate near Detroit, home to some of the country's top auto experts. The property specifications are ideal for the use case.
9. Data Centers
Data centers are where businesses store their data, maintain their internet connections, and enable cloud storage. They are typically 100,000 square feet but can be much larger, with the world's largest facility being a 6.3 million square foot complex in Langfang, China. The reason for such a wide variation in size is that many businesses choose to lease space in third-party data centers.
Showrooms often feature a mix of office, warehouse, and, most significantly, showroom space. More than half of the room is usually dedicated to displaying and selling things. The most common example for most people is a car dealership, but a variety of other enterprises require showroom space.
This list covers only a few most common types of industrial spaces. There are many forms of industrial properties, not to mention other qualities that distinguish the ones we review here.
But they are the most common, highlighting an essential point regarding industrial real estate: For various types of enterprises, the spaces must be suited to distinct needs.