Commercial real estate

What is commercial real estate?

Commercial real estate is land on which a business can be run. As opposed to residential real estate, which can only be used for housing, commercial real estate is designated by law as property intended to generate income. Income from commercial real estate can come from charging rent to businesses that lease the space or from the property owner running a business there herself.

Deeper definition

Local laws stipulate which areas are for commercial use and which are for residential use, a process called zoning. Residential areas comprise housing for people and have minimal traffic and noise. Commercial areas allow for a wider range of building types, the operation of which might otherwise interrupt daily living if they were not separated from housing.

Buildings in a commercial area must house a business or businesses. In urban environments, this often means large office buildings rented out by many different businesses. Commercial real estate in suburban areas often consists of a single business per building. In both cases, the owner of the real estate will receive a reliable rent income, or may operate a business of her own.

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Commercial real estate example

One of the most famous examples of commercial real estate is the Empire State Building in New York. The building is currently owned by a real estate investment trust (REIT) called the Empire State Reality Trust, which makes money by leasing out space in the building, from restaurants to pharmacies to the regional office of the Federal Deposit Insurance Corporation (FDIC). Multiple airlines rent offices in the Empire State Building, as do LinkedIn and the Boy Scouts of America.

Other Real Estate Terms

Net effective rent

Net effective rent is the average amount of rent paid per month. Bankrate explains.

Gross rent

Gross rent is the actual amount you pay for rent each month. Bankrate explains.

Fixture

Fixture is a common real estate term it pays to understand. Bankrate explains it.

Installment contract

Installment contract is a common term that every consumer should know. Bankrate explains it.

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