There is a distinction between residential and commercial real estate. Residential real estate is used primarily for residences. It is land and buildings zoned for single family homes, multifamily apartments, townhomes, condominiums and cooperatives.
Commercial real estate is any real estate used for commerce. Commerce being defined as the interchange of goods, products, services or commodities bought and sold.
The line between residential and commercial real estate becomes blurred a bit when it comes to multifamily apartments. Most state divisions of real estate and most mortgagees define residential real estate as consisting of one-to-four units, whereas anything in excess of five or more units is considered commercial real estate.
Why is commercial real estate important?
Commercial real estate is an essential component of our society. It provides places for us to work and shop and eat and be entertained. It provides places for us to live and raise our families. It provides places for us to obtain medical services. Virtually every aspect of society is impacted by commercial real estate.
Commercial real estate also serves as an integral part of our economy. It provides places of employment for people to manufacture goods, to store goods and to distribute goods. These goods are shipped all over the world which impacts our balance of trade with other countries. In most years, the United States has a negative balance of trade, meaning it imports more goods from other countries than it exports to other countries.
Commercial real estate is also used as an investment. There are trillions of dollars invested in commercial real estate. Financial institutions such as banks invest in commercial real estate and loan money on commercial real estate. Insurance companies and pension funds also own commercial investment real estate. The federal government, religious organizations, and foreign corporations own billions of dollars of real estate within the United States.
Real estate Investment Trusts (REITs) and many private investors own commercial real estate.
Commercial real estate is viewed by many as one of the safest investments for capital accumulation and wealth building. It is a physical asset that has intrinsic value. It produces income either by itself or from leasing to tenants who occupy the property. It appreciates in value over the years due to inflation or the physical location of the property or both.
It receives favorable tax treatment from the federal government through tax incentives and depreciation deductions.