Identifying The Best Commercial Property Investment For You

Commercial investment properties have the potential for the biggest payout over single-tenant residential projects or small rental property investments. Even a residential property becomes a commercial property when it has five or more units. These investments represent benefits like cash flow, appreciation, tax breaks, and more.

As a rule of thumb, the best commercial property investments can accommodate a high number of tenants or single-unit entities with a long-term lease and properties in a growing and desirable area. The following are strong examples of high-return commercial investments:

While technically, this is considered a residence, the volume of units housed on one property reclassifies this investment as a commercial entity. Townhouses, condos, and apartment buildings are all high-earning commercial properties that make strong financial investments, especially in a down economy when houses are out of reach.

These entities generate high cash flow (rent amount x number of units) and may qualify for a number of tax breaks and deductions. From depreciation, forced appreciation, and deductible expenses to certain tax credits and long-term capital gains, there are so many creative ways to maximize your returns

There are a few downsides to multifamily properties that are worth mentioning. They require frequent involvement from a property manager, repair costs across multiple units, high market dependability, and potential tenant issues or evictions. However, many of these costs are consolidated at such a large scale and can be streamlined.

Overall, the pros far outweigh the cons, making multifamily commercial real estate properties some of the best commercial real estate to invest in.

Commercial properties used for retail spaces could be shopping centers, strip malls, restaurants, fitness studios, warehouse stores, entertainment spaces, discount stores, and more. Retail spaces are churning out cash flow and typically capture high rent or lease agreements with lengthy terms. Commercial tenants and business owners have a reputation for stability and professionalism, which is something you don’t always get in the residential space.

The brick-and-mortar retail market has shown measurable growth in recent years. In 2023, local brick-and-mortar stores accounted for more than 84% of U.S. retail sales and totaled over $7 trillion—a 2.2% increase in year-over-year sales.[1]

Commercial buildings also represent high-value assets with high-volume expenses that could qualify for significant tax deductions, reducing your tax liability. This is a thriving market ripe with opportunities for growth in every possible niche and direction.

Special-use spaces are types of commercial properties that are purpose-built for a specific business or industry. Examples include hotels, resorts, and senior housing. These commercial properties have a unique design that limits the scope of use, either due to layout or construction materials.

This approach to commercial real estate can be more volatile as the market for them is cyclical in nature and tends to match local residential real estate market trends. This represents a constant need to fill vacancies, refresh and repair units, and employ evergreen marketing tactics.

A storage facility is often regarded as a low-stakes financial investment with passive income streams, minimal operations, and high cash flow potential. These properties could be industrial spaces that contain secure units where customers can store household items, boats, campers and RVs, cars, and more.

Self-storage properties generate a high volume of cash flow but without the same financial risks associated with apartments and multifamily units. Evictions are simple, turnover is low, and maintenance costs are minimal. They require little involvement in terms of management, and the on-site role can easily be filled by a property or asset manager.

The office space sector of commercial real estate has hit all-time lows for occupancy rates as companies downsize, economize, and take a new approach to team structure. Recent reports reveal that Q4 numbers for 2023 and Q1 numbers for 2024 show a near 20% vacancy rate for office space in the U.S., with more office buildings left unused today than there has been since the 1970s.[2]

With the increasing popularity of remote and hybrid working environments, flexible, co-working spaces are becoming a desirable asset in the economy. These are multi-use spaces with both shared or open workspaces and private rooms available for work of all kinds, ideal for small businesses and teams who want to skip paying for a whole office.

The best spaces have other amenities, like fully furnished spaces, break rooms, conference spaces, high-speed internet, mailboxes, a staffed reception area, use of office equipment like printers, and more. Coworking spaces also create a unique hub for professionals who may not have otherwise connected but value in-person networking.