Reviewed by Aug 27, 2020| Updated on
What is a Commercial Property?
Commercial property refers to immovable property used for industry. Commercial property typically refers to a building that house businesses, land that is intended to make a profit, and larger residential rental properties. The classification of a property as a commercial property has implications on financing, tax treatment, and the laws which apply to it.
Analysing Commercial Property
Industrial land covers shopping centres, grocery shops, office buildings, manufacturing shops, and much more. Commercial property efficiency, including sales prices, new construction rates and occupancy rates, is often used as a proxy for business activity in a given area or economy.
Moody's operates the Moody's/RCA Commercial Property Price Indices (CPPI) for the United States as a whole, which tracks market shifts in commercial real estate nationally.
Investing in Residential Property vs. Commercial Property
Commercial real estate has been historically seen as a safe investment from an investment perspective. The building's initial investment costs and the maintenance costs for tenants are much higher than residential real estate, but the total returns are also higher, and some of the typical problems that come with residential tenants are not present when dealing with a business and straightforward leases.
Investing in Commercial Property through REIT
If you want to invest in commercial property but don't have the money or the ability to buy a whole house, real estate investment trusts (REITs) in more manageable portions will achieve the same goal. REITs function like mutual funds in that they pool investment dollars to buy assets, and the REITs' shares are the trading vehicles that represent the underlying assets.
REITs specialising in commercial properties sell investors' shares to collect the capital to purchase a portfolio of income-producing property. Investors will purchase those shares and sell them on exchanges.