Commercial Real Estate
Commercial real estate is premises or separate buildings that do not belong to the housing fund, but are used for doing business and making money.
Types of Commercial Real Estate
Commercial real estate is now understood as all non-residential facilities that are used directly or indirectly for certain commercial purposes. Conventionally, we can distinguish four groups of commercial real estate:
- industrial;
- retail;
- warehouse;
- office.
Commercial industrial real estate. The objects included in this group belong to a specific sector of the real estate market. This is especially true for capital objects built several decades ago. Because of the stagnation of the industry they stood idle and were unclaimed for a long period of time.
Recently, however, there has been a growth in production and increased interest in the industry. In this regard, the demand for industrial commercial sites: workshops, hangars, technical buildings has increased significantly and continues to grow. New industrial areas for commercial purposes in St. Petersburg are being developed outside the city. According to the decision of the authorities, new industrial zones shall be relocated from the center of the Northern Capital, making way for other commercial facilities.
Commercial retail real estate. It is clear from the name that these facilities are used to organize wholesale and retail sales of services and goods. Now we can observe the intersection of shopping facilities with entertainment. That is why shopping and entertainment centers with a complex multi-level structure are in such demand. Such commercial plots are popular now, but at the moment their spread is limited by the lack of land plots for construction in the central districts of the city.
Commercial office real estate. Commercial real estate is the most demanded at this time — the market is developing, there are new companies for which a personal office is a direct necessity. A common form of relationship is office lease. Huge demand for such type of real estate affects the price: now in some districts of the Northern Capital there is a shortage of office premises. Therefore, new commercial plots are used for construction of office facilities: it is profitable for both owners and tenants.
Commercial warehouse real estate. Various warehouses and warehouse complexes are referred to as a young sector of the business real estate market. However, at the same time it can be called the most promising segment: the growth of trade operations and business development stimulates a considerable demand for buildings for the storage of goods. What's more, trade rules prohibit conducting business without a warehouse. In St. Petersburg there is extremely high demand for warehouses, which is not yet satisfied with the existing supply. Therefore, it is advantageous to use new sites for commercial purposes, such as land Portland, for the construction of modern warehouse complexes — especially if they are located within or close to the city.
The commercial real estate market can be called the most saturated, dynamic and promising at the same time: the growing interest in the construction, sale, purchase and lease of commercial real estate stimulates the development of this area.
The deficit of areas should be filled with the implementation of new projects, including the transfer of the industrial site out of the city territory initiated by the authorities. This will free up space for new projects that will eventually cover the growing demand for various types of real estate, from small commercial premises to warehouses.
The main participants in the Commercial Real Estate market
The commercial real estate market is like a living organism with important constituent parts, organs, each fulfilling an important function for the whole system. And money plays the role of a kind of circulatory system.
Developers are those who initiate the project, calculate its future effectiveness, find investors, acquire land, hire architects, builders, and in the future bring the object to the owners. Developers are those who are engaged in the implementation of the project. Of course, the separation of developers from developers is somewhat relative. A developer is a kind of general contractor, which brings together — the collection and preparation of construction documents and the hiring of final performers.
Builders are the only category that does something with their own hands among all. They erect the facility on behalf of and under the control of the builder.
Investors are individuals and organizations that invest money in the project at various stages of its implementation. Investors can participate in the case at the construction stage or, on the contrary, acquire a share in the finished building. Among investors, a special role is played by investment funds, which invest the most money in large projects.
Owners — businesses and individuals who own the object of commercial real estate. In some countries, in order to register property rights, the building should be completed and officially put into operation. Until then, the future owner is forced to be content with a preliminary document in one form or another, giving him the right to become the owner of the facility in the future.
Tenants — organizations and individuals who pay for the temporary use of the commercial real estate object.
Agents, consultants, intermediaries — those who, so to speak, pump the blood of this whole system: finding investors and selecting land for developers, looking for tenants for owners, and so on. We can humbly say that agents are the very heart...
Roles in the commercial real estate market can be combined. For example, as we have already noted, the developer and the developer can be the same company. Or the owner himself operates his premises, being at the same time the owner and, conventionally speaking, the tenant.
Nevertheless, it is always necessary to separate these functions, because in this way there is a more objective understanding of the situation and the possibility of making a choice.
How to make money from Commercial Real Estate
Commercial real estate can bring two types of income: current, from the operation, and final, as the difference between the purchase and sale price of the object. If you compare it to the stock market, commercial real estate is easiest to compare to bonds: rent payments, current income are coupons, and the sale result is similar to the yield to maturity. The only difference is that, in reality, no one knows the final value of the property in advance.
The future price of a building or structure, or a plot of land used for commercial activities, is precisely determined by the current income they can generate right now and in the future. This profit must be higher than the rate of deposit in the bank. Otherwise, it makes no sense for investors to invest in the objects.
But how much higher? The profit should be sufficient to at least offset the cost of processing the transaction, as well as to cover the risks associated with real estate market conditions, with its liquidity, and so on.
Nowadays, profitability is determined freely within the framework of market relations. And as a result, investing money in commercial real estate is really more profitable than just keeping it in the bank. Especially with the low rates in Europe.
Let's move on to specifics. There are two main ways of making money on commercial real estate. The first is the purchase of objects under construction. Then the income is created by approaching the deadline for commissioning and the beginning of the extraction of current payments.
This option may bring more profit, but is associated with certain risks. For example, such as delays in terms of deadlines and even bankruptcy of developers, developers, or contractors-builders who received payments in advance.
The second way is to purchase a ready-made facility with its subsequent lease. Option is much less risky, although it does not promise a great profit. This business also has its own nuances. It is often easier and better, and even more profitable, for an investor to pay a specialist for support, ongoing operation and maintenance.
