Types of Commercial Real Estate

Welcome to the Topic “Types of Commercial Real Estate”

Commercial Real Estate: What is it?

Commercial real estate (CRE) is a property used solely for commercial purposes or to offer a workspace instead of residential real estate, which is utilized for living purposes.  In Chicago, commercial real estate is frequently leased to tenants to conduct income-generating operations.  This vast real estate category can range from a single storefront to a large shopping mall.

Retailers of all kinds—office space, hotels and resorts, strip malls, restaurants, and healthcare facilities—all fall under the category of commercial real estate.

The Four Primary Types of Commercial Real Estate in Chicago:


Multifamily: A residential property with more than one unit is known as multifamily real estate.  Multifamily buildings are an easy initial step for investors shifting from residential to commercial real estate investing in Chicago because the tenant base is familiar.  Multiple revenue streams are created by having various renters in a single property, reducing the investment risk.  If one renter vacates an apartment complex, you are unlikely to have a significant impact on your bottom line because you have many other tenants paying rent.  The multifamily asset class covers everything from two-tenant duplexes to multi-story apartment buildings with hundreds of residents.

As their names suggest, duplexes, triplexes, and quadplexes are two-, three-, and four-unit properties, respectively.  Even though “plexes” are classified as multifamily since they have numerous units in one building, they give renters a more residential home feel.  Each of these units has its entrance and is around the same size.  These types of units are fairly widespread in all markets across the United States, and they may have been built for many tenants or refurbished for such purposes over the years.  Close to 20% of renters, according to the National Multifamily Housing Council, live in a plex.

As the name suggests, Student Housing complexes are intended to house college and university students.  As a result, they are often found near educational institutions and may be owned by a group of investors and universities, and colleges.  Common areas are prioritized in student housing architecture to encourage occupants to leave their rooms and interact with their neighbors.  Residents of typical apartment housing, on the other hand, expect more privacy and a self-contained living unit.  Senior & Assisted Living multifamily has a completely distinct model than the other products in this asset class, requiring specific understanding.

Types of Commercial Real Estate Chicago
Types of Commercial Real Estate Chicago

Office Space

Chicago office space: Multi-tenancy, like multifamily, is a prominent aspect that attracts investors to office real estate.  The property might have one to dozens of tenants depending on the type of the building and where it is located.  Depending on their age and quality, office spaces are classified as Class A, Class B, or Class C assets.  Due to the cost of changing over and building out space for incoming tenants, office investing can be more capital intensive than other types of commercial real estate.  On the other hand, offices can fetch some of the highest prices due to the cap rate valuation of commercial real estate in Chicago. 

Some of the city’s top corporations, such as Amazon, Bank of America, and others, will require commercial buildings for sale in Chicago.  Because the CBD is known for its high-density development, these structures are typical mid-to high-rise structures with controlled parking and elevator access.  The ability to name a building in the CBD could be a deciding factor for major corporations looking to relocate their headquarters.  The CBD in most American cities houses the city’s financial district and leisure and retail opportunities.  Because of the ease and walkability, several professional services firms opt to locate in these buildings.

Smaller, local professional services firms frequently prefer Chicago commercially zoned residences.  As the name implies, they are former residential apartments that have been rezoned or repurposed for commercial use.  You’ll find a lot of accounting firms, law firms, and other businesses here who don’t want the “corporate” vibe that a standard office building might provide.  With full kitchens, patios, and fenced-in backyards, many renters like the “homeliness” that this type of office space can provide.  Tenants can also lease these on a stand-alone basis, eliminating the need to deal with disruptions from other tenants.


Industrial assets come in a wide range of sizes and uses, and because of the rise of deliveries, this asset class has exploded in popularity throughout the last economic cycle.  This class has a distinct personality and isn’t as “polished” or “sexy” as the others.  On the other hand, industrial might be one of the best real estate assets to invest in due to its flexibility and low entry cost.  Because there are few reasons for these renters to migrate, they frequently stay in their current location for long periods

In Chicago, bulk warehouse assets are the largest industrial product, with sizes ranging from 50,000 to one million square feet.  Office space typically accounts for 5 percent to 10% of total square footage, with the remaining being warehouse space.  Because there generally is fewer staff working in bulk warehouses and little to no customer traffic, parking ratios are lower than in other forms of industrial real estate.  These assets are typically used for regional distribution of various products and necessitate high accessibility for trucks entering and exiting highway systems.

Due to the use of heavy machinery, chemicals, and power requirements, heavy manufacturing space is frequently isolated within the most heavily industrialized parts of municipalities.  Consider GM and DuPont as potential tenants for this type of industrial product.  These properties are often substantially adapted to meet the current user’s needs, which may include specialized infrastructure, finishes, and power.  In reality, in terms of space customization per tenant, this sort of industry tends to learn from the retail sector.

Cold storage and refrigeration warehousing are exactly what they sound like: chilled storage for perishable foods and goods.  Since 2000, cold storage has grown dramatically due to rising consumer demand for fresher food and supermarket delivery.  These areas are particularly specialized and build-out intensive, similar to heavy manufacturing, which keeps tenant retention high.

Storage units are an intriguing blend of industrial and multifamily housing that appeals to a wide range of investors.  Tenants can hire these assets to keep everything from precious family mementos to trailers, and they can be both outdoor and indoor (climate controlled).  Outdoor units require more area to expand; thus, they’re usually found outside the city limits, whereas climate-controlled units are frequently multi-story buildings with elevator access.  Storage unit demand will continue to climb as Americans move into smaller and smaller living quarters.

Types of Commercial Real Estate


Any firm that offers products and services directly to consumers should be housed in retail real estate in Chicago.  These projects are often situated to give consumers the greatest amount of ease.  While some may believe that retail is dying, it is simply evolving due to the surge in delivery options.  Retail is shifting to provide more entertainment and experiences that internet purchases cannot replicate.  This property type can range from small, stand-alone restaurants to large regional shopping malls.

Community retail malls are typically 150,000-350,000 square feet in size and offer a larger trade area.  Depending on which anchors occupy the land, these shopping centers can feature any combination of full-price and discount businesses.  They usually sell a variety of clothing and other soft products.  Big-box retail anchors, such as Kroger, Target, Best Buy, and others, typically occupy community retail centers.  Smaller stores will fill in the gaps between these larger anchors to attract the same customers.

A power center is a shopping mall with a significant regional retailer as its anchors, such as Wal-Mart or Bass Pro Shops.  These shopping centers are typically 300,000 square feet or larger and are conveniently positioned near interstates.  Power centers generally contain many out-parcel buildings and their in-line shops to provide convenience for the shoppers attracted in by the anchors.  Because of their sheer size and scale, these centers are frequently transferred among institutional buyers, and the tenants tend to be very creditworthy.

Industrial showrooms are a cross between an office, a retail store, and a warehouse.  This solution enables manufacturers to display their products in a more retail-like environment while also providing a back-end office that handles shipping and distribution.  Consider car dealerships and home goods distributors (Home Depot), which attempt to demonstrate, sell, and operate all of their products from a single location.  Showrooms are frequently located near interstates to provide high visibility and quick customer access.

There is a lot of overlap with flex space in the light assembly industry.  Unlike heavy manufacturing, spare assembly space is often used to assemble and ship products to distribution hubs rather than create them.  Light assembly, like flex space, can be used for storage and office space (call centers, data centers).  Because the servers and enormous amounts of cabling will be consuming a substantial amount of energy and emitting heat, light assembly warehouses will need to consider power redundancy and internal cooling if used in data centers.

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Also Read: Top Six Reasons Why Chicago Commercial Real Estate Is Attracting a More Diverse Investor Base