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What is commercial real estate?

Commercial real estate is any piece of property used for business purposes. There are several different types of property that could be classified as commercial. Offices, whether they are downtown or in a suburb, and retail spaces both fall into the category. Note that multifamily real estate may also be considered commercial. Multi-family spaces include apartment buildings—like high-rises, duplexes, and garden apartments.

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Understanding commercial leases

In most cases, business owners lease a property from an investor rather than purchase the property for themselves. Whether you are the lessee or the lessor, you should understand the basics of commercial leases. There are no standardized forms for commercial leases, but in most cases a commercial lease will include the following:

  • The length of the lease. This could be a year, five years, ten years, or longer.

  • How much you owe as a security deposit.

  • Your monthly lease payments. The lessor may require that you pay a portion of your business' profits. Others require that you pay a portion or even all of your operating costs.

  • Other details about the property. For example, there may be a clause indicating what type of signage you're allowed to use.

  • Information about competitors. The lessor may agree not to lease space in the same building to any businesses that are similar to yours.

Usually, a lawyer will write a commercial lease. As lawyer, Richard Sierra, notes, "It is unlikely that a lay person would understand the language and clauses contained in a commercial lease." You should have a qualified lawyer review your commercial lease before signing.

Choosing where to lease

When you're looking for a commercial space to lease for your business, there are many factors you must take into consideration.

One of the primary things to consider is the neighborhood:

  • Is there enough traffic in the area to give your business the desired visibility?
  • Will there be enough parking for your customers?
  • Do people who live near there have a need for your business?

Consider zoning laws

Zoning laws may also influence where you choose to set up your business. These laws dictate how property in a certain area can be used.

Your property must be located in a commercial zone in order to operate your business. This means that the city has given permission for businesses to operate in that area.

The particular laws in your area will list for what purposes you are permitted to use the property for, including what kinds of construction or renovations​ you can make to the property.

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