Commercial Real Estate: What Is It?

Commercial real estate, or CRE, is a broad class of property that businesses lease

for their operations. It can include everything from retail and office space to

warehouses and hotels. CRE is often more expensive than residential real estate and

can be a good way for investors to generate income and diversify their portfolios.

Typically, real estate brokers who specialize in CRE work with clients who are looking

to buy, sell or lease commercial property. These brokers can also help clients find

the right financing for a commercial property purchase. In addition to these services,

CRE brokers can also provide investment analysis and advice on how to optimize a

commercial property for its best use. For more

Local zoning laws determine whether an area is zoned for commercial or residential

property, and these laws often slot areas into one of six different commercial real

estate types: retail, office, industrial, multifamily (often known as apartment

buildings), and hotel/resort. Within each of these types are further sub-types that

can narrow a prospective investor’s options.


For example, office spaces are used for business offices and usually have long term

leases. Warehouses can hold a large amount of inventory, including raw materials

and finished goods, for delivery to customers. And flex space properties, which have

a mix of office, warehouse and storage areas, can be used for a variety of purposes,

such as the showroom and shipping facilities of an importer.


Many commercial real estate investments are managed by private owners or

syndicators, rather than REITs or publicly-traded funds. This is because commercial

property is generally considered more risky than residential real estate and investors

may need to provide more personal information, such as financial records and credit

history, to qualify for a loan. Additionally, there is a higher minimum investment

requirement for commercial real estate.


Those who are looking to invest in commercial property can do so directly by

purchasing the actual physical asset, or they can do so indirectly by investing in

securities of REITs and other real estate investment trusts. Those who invest directly

in commercial property need to have access to significant capital and have

knowledge of the industry.


NerdWallet writers are subject matter experts who use primary, trustworthy sources

to inform their work, including peer-reviewed studies, government websites and

academic research. Their articles are fact-checked and rigorously edited for

accuracy, timeliness and relevance.

The key differences between commercial and residential real estate are the size of

the units, the type of tenants and how the properties are used. Residential real

estate includes single-family homes and rentals that contain between one and four

units, such as condos or duplexes. Commercial property includes apartments,

offices, warehouses, hospitals and retail stores. Some other examples of commercial

real estate are auto dealerships, manufacturing plants and specialized facilities like

cold storage and airports. While it’s possible to invest in both types of real estate, it

is common for investors to focus on a particular type or sector because it offers

more potential for growth.