Commercial property

Commercial property is real estate developed or acquired for investment purposes.

Most people envision space for retail, warehousing, offices, industry, hospitality and restaurants. Those images are correct, but farms are also commercial. Smaller parcels rented out for signage or other business uses also qualify.

Commercial property is one of two general categories of real estate. The other, residential property, is for housing purposes.

The question, then, is how to categorize properties purchased to rent out as homes to tenants. The Internal Revenue Service considers them to be residential. That’s important because the IRS affords residential property better depreciation terms than commercial property.

The real estate industry, however, takes a different view. The general rule is that only properties with fewer than five units can be classified as residential. All those units, by the way, must be for a dwelling. Larger properties and those with mixed residential and commercial use, then, qualify as commercial.

Commercial property’s economic impact

Economists pay more attention to housing starts and new home sales. Even so, the economic impact of commercial real estate markets is undeniable. The rate of increase or decrease of monthly rent per square foot of commercial space mirrors the health of a local economy.


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