Commercial Property Types: A Guide to Key Investment Opportunities

As an investor,  it's essential to know the different types of commercial property and how they fit into the wider property market. Both investors and business can experience unique advantages with each commercial property category. These advantages depend on the location, usage, and market trends.

So, what exactly are the main types of commercial property, and why should they matter to you?

What Are the Main Types of Commercial Property?

Let’s take a look at the different types of commercial property. You’ll be in a better place to make important investment decisions or find just the right place for your business armed with this useful knowledge.

Office Buildings

Businesses of all shapes and sizes across all sectors need an office building. They’re one of the most common types of commercial properties we’ll see in this list and they offer a range of lease options and amenities too.

Types of Office Buildings:

1. High-Rise: Just like in a Manhattan skyline, these skyscrapers or tall office towers are located in major city centres. You’ll come across corporate headquarters, law firms, and financial institutions here.
2. Mid-Rise: As the name suggests, these are not as high as a high-rise and are typically between five to twelve stories. You’ll find mid-rise office buildings in business districts outside the main city hubs.
3. Serviced Offices: Perfect for startups, freelancers and smaller firms due to their flexible lease options. These are fully managed spaces which suit those needing that flexibility.

Office buildings generally yield consistent rental income. They’re a solid property investment opportunity, especially in prime business districts.

Retail Spaces

Businesses that sell their products or services direct to consumers are generally found in retail spaces. This category includes small shops on the high street to massive shopping centres and everything in between…

Key Types of Retail Properties:

1. High Street Stores: These are standalone shops in busy areas for the benefit of high foot traffic.
2. Shopping Centres: These retail hubs encompass a variety of tenants, including restaurants, clothing stores, and service-based businesses.
3. Retail Parks: A retail park is designed to accommodate large-format retailers such as supermarkets or furniture stores. They’re more than likely found outside city centres.

Traditionally retail properties have been a sound business investment. However, the growth of e-commerce has meant bricks and mortar shops have seen a huge decline. This has led to landlords and investors having to rethink how these spaces are utilised. Many are now being re-purposed for mixed-use developments.

Industrial Properties

Logistics and manufacturing businesses play a huge part in the country’s economic output. These types of businesses all need certain types of industrial property to ensure their successful futures. Properties such as factories, warehouses and distribution centres are integral to this category. 

Types of Industrial Properties:

1. Warehouses: Storage facilities located near transport hubs to facilitate the distribution of goods. As we mentioned earlier - the rise of online shopping means these businesses need a storage hub.
2. Manufacturing Plants: These properties are where goods are produced, ranging from small factories to large-scale production facilities.
3. Distribution Centres: Focusing on the rapid processing and shipping of goods to retailers or customers. These facilities go beyond the standard warehouse setup.

With the growth of e-commerce and the demand for quicker delivery times, industrial properties are now considered one of the most lucrative commercial property types.

Mixed-Use Developments

Mixed-use developments combine different commercial property types into one facility. In these properties, you’ll find residential, retail, and office spaces. They’re usually situated in urban areas where space is at a premium or where retail space has become less popular.

Should You Invest in Mixed-Use Developments?

• Diverse Income Streams: Reduce risk by investing in multiple types of tenants.
• Urban Revitalisation: Local authorities are encouraging the use of mixed-use developments in an attempt to revitalise ageing commercial areas.
• Sustainability: There’s often a focus on eco-friendly designs in these developments. This might appeal to tenants looking for modern, sustainable spaces.

If you're looking for a versatile investment, mixed-use properties offer the potential for capital growth and stable rental yields.

Other Commercial Property Types

Not all commercial property types are covered in office buildings, retail spaces, and industrial properties. There are other niche commercial property types worth considering:

• Co-Working Spaces: These are shared office environments where freelancers, startups, and remote workers can rent desks or private offices. Co-working spaces are a growing trend in cities and business hubs.
• Hospitality Properties: Hotels, restaurants, and event venues fall into this category. These properties are often located in tourist hotspots or areas with high demand for corporate travel.

Factors to Consider When Investing in Commercial Property

Picking the right type of property isn’t the be-all and end-all of commercial property investment. If you’re considering a move into this sector then you’ll need to seriously think about location, tenant demand and lease agreements.

Key Factors to Keep in Mind:

1. Location: Each business’ prime location is unique. Do you need a city centre or an area near transport hubs? Some locations will command higher rents and attract long-term tenants.
2. Rental Yields: Your business plan will likely look at rental yields as you’ll need to know if you can turn a profit. Commercial properties often offer higher rental yields than residential properties.
3. Tenant Agreements: Commercial leases tend to attract long-term agreements, which can provide a stable income stream. However, you’ll need to pay special attention to details when negotiating tenant agreements, especially in sectors with volatile demand, like retail.
4. Property Management: The administration and day-to-day management can become a burden so hiring a property management company can help free your time. If you’re investing in multiple commercial properties then this is almost a must.

What Does The Future Hold For Commercial Property?

Recent trends in the commercial property market are really reshaping how properties are used. Let’s take a look at some of these shifts:

• Co-Working and Flexible Office Spaces: COVID-19 brought a very turbulent time and also a stubborn rise in remote working. This trend looks to have sustained so businesses are seeking more flexible lease options for their properties. Co-working spaces and serviced offices are becoming increasingly popular, especially in major cities.
• Demand for Industrial Properties: Another trend that shows no sign of slowing is the growth in online shopping. The e-commerce boom has fuelled demand for warehouses and distribution centres. Investors have been focusing heavily on this property sector as online retail continues to be the de facto way we shop.
• Mixed-Use Developments on the Rise: The rise in e-commerce has meant the decline of some retail spaces. Developers are repurposing these spaces into mixed-use developments. We now find a blend of retail, office, and residential spaces, leading to a more sustainable way to develop urban areas.

Challenges and Opportunities in the Commercial Property Market

When considering a leap into the commercial property market you’ll need to balance out the opportunities and potential challenges.

Rules and Regulations: Planning permission regulations can limit what you can do with a property. You’ll certainly see this if you're looking at new developments or if you’re trying to change the use of a property in a city or town centre. To make sure you don’t fall foul of the law, always consult with local councils or property consultants before making major decisions.

Market Volatility: While some sectors (like industrial properties) are booming, others (like high street retail) have seen a downturn due to the rise of online shopping. Get to know your market trends before making any big investment decisions.

Long-Term Investment Strategies: Commercial property is a long game. Rental yields can be attractive, but market shifts and economic cycles mean that investors need to stay on top of changes in tenant demand and property values.

Key Takeaways

We hope we’ve given you some solid details to help you make an informed decision about how you want to take your first steps into commercial property investment. So, whether you’re looking to invest in office buildings, retail spaces, or the growing sector of mixed-use developments, you have the knowledge of the different commercial property types.

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