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What Is Commercial Real Estate?

Commercial real estate, sometimes referred to as commercial property, is a kind of investment property used by organizations as a place to do business.

Unlike residential real estate, commercial real estate covers a wide array of possibilities.

Commercial property can be an office building, a single-tenant retail structure like a restaurant or big box store, an industrial park full of warehouses, a medical facility, or just about any other structure not used for living.

Who Rents Commercial Real Estate?

Every type of organization rents commercial real estate. While some corporations, nonprofits and government buy property outright, tenants often lease facilities instead.

That’s because while it may be more expensive in the long run, most organizations prefer the flexibility that comes with renting. Many corporations prefer to use their cash to do business rather than buying an expensive facility using a lot of upfront cash.

How Can You Invest in Commercial Real Estate?

There are several ways investors can get a piece of commercial real estate as part of an investment group, or at least gain indirect exposure to these assets. They include:

Crowdfunding. There are a lot of real estate-focused crowdfunding sites out there. Including CrowdStreet, DiversyFund, PeerStreet and Fundrise. Thousands of small-time investors pool modest sums to gain exposure to commercial real estate this way.

Publicly traded real estate firms. There are a host of stocks like the Empire State Realty Trust that own property. There is even a special class of stock called real estate investment trusts to accommodate commercial real estate firms.

Private equity funds. If you have cash, you can invest in a larger and more private equity fund for direct commercial real estate exposure.

Why You Need to Know About Commercial Real Estate

Commercial real estate can be a good way to diversify your portfolio. All investments carry risk, but certain forms of commercial real estate carry relatively low risk.

For instance, it’s not uncommon for commercial real estate tenants to sign seven-year or even 10-year leases. This offers a lot of reliability to landlords. Certain commercial real estate investments can withstand recessions, as these tenants include organizations that won’t go away even if the economy gets rocky. And of course, the reliable cash flow from monthly rents adds a bit of certainty.

You should always do your research on any investment, but there are a host of commercial real estate investments out there that tend to perform more consistently than other assets over time.