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Important Terms to Know in Commercial Real Estate

Commercial Real Estate Professionals - Milbrook Properties - FL, PA, NY, MD, DE, NJ

When you venture into the world of commercial real estate, many different terms and acronyms may be thrown at you. To help keep things simple and to have an easier time communicating with your peers and clients, it is important that you familiarize yourself with some basic terminology.

Commercial Real Estate

The physical property that makes up the commercial real estate industry is divided into three main sectors: office, retail and industrial. Each of these sectors is typically broken down into a number of subsectors in order to differentiate properties with certain attributes from those without them. For example, office space would be classified as Class A, B, or C depending on its condition and age. Retail spaces are often segmented by type of store, such as grocery stores or clothing retailers.

Office Space

In the real estate industry, office space is often divided up into Class A, B, and C categories. These categories are typically based on location and the desirability of the property, as well as its age, since newer properties are more desirable than older ones in bad condition.

Class A spaces are usually found in prominent locations within a city or town. They also tend to be newer and were built for purpose-specific functions such as banking institutions or medical companies.

Retail Space

The retail sector of commercial real estate is further broken down into subsectors that differentiate types of retailers based upon their business models. Grocery stores, clothing shops, or food courts are all examples of common uses for retail space that differ from one another significantly enough to warrant their own subsectors.

Industrial Space

Just like the office and retail sectors, industrial space is also segmented into classifications that determine its desirability based on factors such as location or age. Class A category spaces are usually newer buildings with ample parking and are often found in close proximity to major highways or rail lines.

While the cost of these properties tends to be higher than those categorized as 'B' or 'C,' they tend to offer more robust amenities that have attracted businesses seeking a modern look for their warehouses.

As you venture out into the commercial real estate industry, it is important that you familiarize yourself with some basic terminology in order to help facilitate communication with your peers and clients.

Capitalization Rate

Suppose you are looking at investment opportunities in commercial real estate. In that case, the capitalization rate (also known as the cap rate) can help you determine if the opportunity will be worth your while. Cap rate is determined by taking the net operating income (income minus expenses before debt service) of a property and dividing it by the market value. The higher the cap rate, the more potential profit you can make on your investment.

Commercial Property Investment

One of the main ways investors are able to make money in commercial real estate is through investing. When you purchase a property, you must assume a mortgage from the bank in order to pay for it. This means that it is possible for your investment to generate income immediately after purchasing it as long as you have capital set aside to cover the initial costs.

Commercial Real Estate DE, MD, PA, FL, NJ, and NY

These are just some of the terms commonly used in commercial real estate. If you want to learn more or if you have any queries regarding real estate, contact Milbrook Properties today.


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