top of page

The Components of Commercial Real Estate: A Complete Overview

Selecting a suitable commercial property requires careful planning. Real estate plays a prominent role in securing a space that considers all factors, from location and planning to safety equipment and general maintenance, etc. Besides these, when it comes to commercial property, the list of prerequisites is categorized keeping in mind the owner or occupier’s nature of usage. Novice/rookie investors might find this task daunting; however, breaking down the basics can simplify the tasks at hand. Let's begin by understanding the basics of commercial real estate.

Commercial real estate: A brief introduction

Such types of real estate are business oriented, owned, and managed mainly as a means for generating income. These properties are leased, rented, bought, sold, and refurbished frequently. The largest share of earnings comes from commercial rental.

Difference between Commercial and Residential properties

Residential properties are bought for the purpose of residing or renting it as a home. These estates have limited capabilities and create little interest among investors looking for multiple options. Commercial properties can be repurposed to suit various commercial investing and business needs. Hence, such properties can bring in earnings continually.

Understanding different types of Commercial Real Estate

A commercial space can be utilized in many ways, such as clinics, offices, shops, etc. Some of the most well-known ones are classified below:

Corporate Workspaces

Institutions, Banks, Firms, Multinational Companies, etc., are expanding rapidly as the need for employees increases, so does the need for workspaces. In such times, commercial properties in business districts and prominent areas are heavily coveted.

Retail Outlets

Branded goods and retail shops are usually situated closely, whether it's in malls or shopping streets. There’s always an opportunity available to set up shops near these areas. Some of the popular labels have regular footfalls despite their location. Such locations become their trademark.

Hotels, Resorts, Inns, etc.

Developers build high-end hotels having unique landscapes, including recreational activities and scope for exploring. Such premier locations attract a variety of people willing to pay high rates for the experience of luxury. The land parcels also fetch sizable profits when put for sale or lease.

Hospitals and Healthcare centers

These properties are constructed near residential areas and in zones with easy accessibility. While government-funded clinics and hospitals are built using public funds, private institutes are sponsored by wealthy families and well-established companies known for philanthropy. These properties also require space for medical colleges or institutions nearby.

Data Processing Centres

Information Technology has become a key part of a thriving business. With an increase in use of technology comes a need to have data centers. These centers function with large computer systems that require a huge amount of space. Corporations usually lease an additional floor in the same building for these centers or have them closely located.

Educational Buildings

Schools, Colleges, Universities, etc., require large buildings to accommodate students, teachers, and staff. As these are places for learning, they have additional spaces such as playgrounds, auditoriums, laboratories, and more. Commercial developers are given special instructions in these regards for unique constructions.

Mixed Properties

Storage Units, Amusement parks, Recreational Zones, etc., are some of the other types of commercial real estate. These properties mostly require large spaces in the outskirts of a city. They constitute pockets of areas with mixed facilities. For example, Indoor stadiums can be used for sports competitions, car exhibitions, furniture expos, etc.

Is Commercial Real Estate a favorable investment choice?

India’s real estate market is growing exponentially. The increasing demand for commercial spaces has led corporations to seek out locations that accommodate their requirements.

The location plays a huge part in streamlining the earnings:

  • City Centres or Central business districts are easily reachable and have more footfalls.

  • IT parks and Business Plazas near core locations are always in demand.

  • Shopping districts often attract branded retailers to set up outlets.

  • Luxury establishments are built in scenic areas with amenities available nearby.

Investing in such areas with strong infrastructure, elegant design, and conveniently situated facilities increases the possibility of generating more earnings.

Key participants in Commercial Real Estate

Dealing in a commercial property requires knowing the players and stakeholders involved. Here are some of the significant ones listed below:


An investor procures large sums of money for funding developers to construct properties. They also buy previously constructed properties which are then given for lease or rent. The investors could be a group of individuals or an organization. They are also known as Real estate entrepreneurs.


They are responsible for converting the ideas of their investors in the form of lucrative commercial properties. Funds received are duly used for constructing the buildings as per agreement. Their work begins from level zero, and some of their duties include:

  • Location Selection and study

  • Purchasing land

  • Zoning requirements

  • Construction permits, etc

Some of the properties are redeveloped to suit the purpose of future occupiers.

Property Consultants

They act as a middleman between estate owners and potential buyers or renters. These consultants help their clients in procuring a deal that benefits them in the long run. Apart from negotiation, they also play a crucial part in documentation formalities and visit properties that are part of the negotiation process.

Legal Professionals

Before putting in a huge sum, it is imperative to consult a professional well-versed in real estate laws. While some organizations have in-house lawyers, others consult law firms. All parties associated with commercial real estate need to know the technicalities of dealing with properties before signing an agreement.

Banking Institutions

Banks and Financial institutions frequently engage in property-related transactions. In many cases, loans are guaranteed with mortgages on lands and buildings. These institutions agree to fund the construction or redevelopment of commercial properties based on the history of their borrowers. In some instances, they also require the borrower to have a loan guarantor.

Real Estate Regulatory Authorities

It is a government authority dedicated to protecting the interests of all parties involved in real estate transactions. Each person involved in these transactions is required to follow the steps put forth in a bid to increase transparency. The list of certificates and documents mentioned in the instruction manual makes the registration of projects and agents simpler.

A short guide to investing in Commercial Real Estate

There are various investment options available for funding commercial estate. Some of them are divided into two main options:

Direct Investment

  • Partnership

Forming a short-term partnership can seemingly be more beneficial than plunging headfirst into the commercial real estate market as a sole owner. It is a business strategy that can help compartmentalize the workload needed for investing and managing such properties. It also instills accountability, as the partners are involved in decision-making, management, profit and loss distribution processes.

  • Equity

This form of equity investment is privately managed, and the investor essentially becomes a stakeholder. They hold as much percentage of stake as the amount they have invested. The investors gain high returns through rentals paid by occupiers and also during property sales.

  • Buyout

A group of individuals or organizations buying a commercial property from another group of individuals or organizations can be considered as a buyout. The latter parties offer to buy a significant percentage of the stake from the former. The former then gives up any claim they have towards the estate after the final buyout.

Indirect Investment

  • Real Estate Investment Trust (REITs)

It is a trust consisting of parties that manage income-generating commercial properties. Many investors approach these trusts and contribute a significant sum for buying or leasing lucrative properties. These trusts handle real estate funds similar to that of mutual funds. A certain percentage of the returns is then transferred to the investors.

  • Land Banking

It basically means reselling a piece of land at a higher value than the original price. The interested parties track the development of specific parcels of land. It involves three different stages:

  • Early stage

  • Growth stage

  • Maturity stage

Most investors buy the land during its early stage to gain maximum profits in the later stages.

Benefits of Investing in Commercial Real Estate

Involvement in real estate brings with it a fair share of risks. However, financiers engage in it after considering various channels of investment. The risk rewards investors handsomely in the form of:

Portfolio Diversification

Holding a limited set of funds in limited asset classes brings in limited returns. A diversified portfolio holder has dabbled in multiple areas and is a risk-taker. Investing in Commercial properties along with other asset classes will help increase earnings.

Stable Income

Real estate can offer a source of stable income, whether it's residential or commercial. However, commercial properties have a higher chance of increasing cash flow stability. Such estates are in higher demand, and potential occupiers are willing to match the rates quoted by landlords.

Profitable Returns

Commercial properties in central locations are coveted by many investors and developers. Once the property is listed for sale, the owners are offered favorable sums of money. Such estates are almost always sold at a higher price than quoted.


This article serves as a brief summary of the basics of commercial real estate for serious knowledge seekers and future investors. For further study we recommend reading academic books suggested by reputed authors or institutions such as:

Please feel free to contact our associates for further knowledge and information regarding commercial real estate at

#commercial real estate #commercial real estate basics #types of commercial real estate #commercial real estate investing #real estate basics #commercial real estate investment options #commercial real estate participants


bottom of page