The real estate industry is one of the most critical industries in the current market. It is considered to be one of the pillars of the US economy. It covers many aspects such as developing, appraisal, managing, and leasing real estate.
In 2018, commercial real estate contributed 2.7 trillion dollars to the US economy. This amounted to 13% of the US GDP. Moreover, it employs 2 million people compared to 800,00 people in farming. Thus, the industry plays a massive role in the US economy. In addition, it relates to other sectors and industries by providing a factory or office space to operate.
Hence, it is essential to know what types of real estate exist in today’s market and their difference.
This article discusses the real estate industry sectors – the umbrella term for commercial and industrial real estate. We’ll also discuss US real estate and its growth.
- Real Estate Industry
- Types of Real Estate Industry
- Are There Any Industries Under the US Real Estate Industry?
- What Comes Under the Real Estate Sector?
- Is Real Estate a Services Sector?
- What Is an Industrial Property?
- What Are Market Segments in Real Estate?
- What Does Commercial Real Estate Include?
- Is Commercial Real Estate an Industry?
- What Are the 4 Main Categories of Commercial Real Estate?
- What Is the Difference Between Commercial and Industrial Real Estate?
- Can You Invest in Real Estate without Owning Physical Property?
- In What Economic Sector Are Real Estate Agents?
Real Estate Industry
The real estate industry refers to the buying and selling of property or investment or for use by the real property owner. There are 5 main categories of real estate:
- Raw Land
- Special Use
The term real estate includes vacant land along with natural and artificial structures.
Types of Real Estate Industry
As of today, there exist only two major types: Residential real property and non-residential real property.
Residential Real Estate
Residential real estate refers to the property used for living purposes. It includes single-family homes, condominiums, apartment buildings, as well as the land.
Residential real estate has experienced rapid growth in recent years. This is due to several factors, such as population increase and a notable drop in interest rates.
The US has experienced a boom in residential housing construction since World War II. In fact, from 1960 to 2000, there were close to 75 million new homes built across the country.
This amounts to an average of one house built every 17 seconds!
During this period, real estate was an avenue for people to build wealth rather than being a house. As such, people began buying up properties left and right. It was unsurprising considering how low-interest rates had been during this period. The trend only recently ended by the 2008 financial crisis. The commercial real estate market peaked and then plunged, coinciding with the recession.
Non-Residential Real Estate
Non-residential real estate refers to realty that goes beyond residential use – properties. They are not meant for living, but rather for business or productive activities instead. For example, office buildings, shopping malls, warehouses, and other properties.
This sector has been growing at an even faster rate than its counterpart since 2010. This is because it offers investors better yields per dollar spent compared with other investments.
Are There Any Industries Under the US Real Estate Industry?
There are several different sectors involved, including:
- Construction companies who build them
- Retail outlets that occupy commercial spaces within malls or office spaces
- Grocery stores occupying land used for producing food products and more
Governments also play an essential role in this sector. They manage land other crucial resources like water supply (e.g., California’s drought).
The economic impact of the industry is notable – reaching over $700 billion every year. Some groups estimate that it has created close to 20 million jobs worldwide. It can be broken into three main categories; investing, development and management.
Each category presents opportunities to innovate new ideas while pushing forward the industry. For example, the US real estate market alone is worth over $35 trillion – some estimate it to be even higher.
What Comes Under the Real Estate Sector?
There are two real estate sectors: commercial and industrial.
- Commercial Sector: Income-producing purposes
- Industrial Real Estate Sector: Produces goods rather than services
The commercial sector includes multi-story structures like shopping centers, business parks, entertainment venues. On the other hand, the industrial sector includes warehouses, factories, and similar places.
Both the sectors are multiplying as of 2017 since investment continues to flow into real property assets. Moreover, those in the commercial sector offer investors higher yields per dollar spent.
Is Real Estate a Services Sector?
Though often recognized as a part of the construction industry, it is pretty far from the truth. Instead, it’s a service sector that works along with other sectors in this area (e.g., engineering). But, it also exists on its own within many industries like manufacturing or retailing.
According to NAIOP, it is a business model that offers its clients access to commercial properties and facilities. Above all, you can use it as such or modified to suit the customer’s needs.
What Is an Industrial Property?
Industrial property refers to those built for industrial purposes. They include properties used to develop and manufacture products. In addition to that, assets used for storage and those that support the production also come under the industrial property. For example, warehouses, factories, and other places like multi-story structures with a roof.
Industrial real estate produces goods rather than services like manufacturing or wholesaling. These properties aren’t as glamourous as malls, skyscrapers, and well-manicured apartment buildings. However, they play an essential part in the economy, enabling it to run without a hitch.
What Are Market Segments in Real Estate?
Market segments in real estate refer to the earning capacity of a property and its resale value. In terms of finance, it applies to different real estate investment sectors. For example, the retail sector refers to malls, shops, grocery stores, and more.
Investors and developers tend to focus on the sector that best serves their industry. For example:
- Retail Property (Shopping Malls)
- Industrial Property (Factories or Warehouses)
- Office Spaces (Companies in Need of Headquarters)
- Data Centers
What Does Commercial Real Estate Include?
Commercial real estate includes multi-story structures used for income-producing purposes like office complexes and malls. These types of properties are generally multi-storeyed with a roof. Its uses depend on what they will be rented out for. For example, an apartment complex might contain residential units and some commercial space to generate more revenue. Commercial property can also encompass things like business parks, entertainment venues, corporate campuses, and more.
Is Commercial Real Estate an Industry?
Commercial real estate is not an industry but rather a service. It intersects with other industries and sectors – such as real estate, construction, engineering, finance. But it can also exist on its own within several business types like manufacturing or retailing.
Commercial real estate consists of companies that develop commercial, industrial, or residential properties. In addition to that, it also includes companies that provide services such as buying, selling, renting, leasing, and managing real estate.
What Are the 4 Main Categories of Commercial Real Estate?
Commercial real estate comes in a few different forms, including:
- Office Buildings
- Retail (Shopping Malls)
- Multi-Family Housing – This is a property intended for people to live in. Apartments and other such complexes are also good examples.
- Industrial – As mentioned earlier, industrial realty includes warehouses, factories, and the like. They are generally multi-story structures with a roof. For example, storage facilities or manufacturing plants that produce goods instead of services.
What Is the Difference Between Commercial and Industrial Real Estate?
Commercial real estate refers to properties used for income purposes like office buildings and malls. They are usually multi-story with a roof, but the purpose depends on the business they host.
Industrial real estate refers to those built for industrial needs like warehouses and factories. These types of properties are used in productive activities like manufacturing or wholesaling. Some examples might also exist within the transportation sector. For example, you can see it at airports. They have warehouses (on several stories) that handle goods from international flights.
Unlike commercial properties, it doesn’t have to be multi-story or have a roof. It can come in both non-residential and residential forms depending on the business.
Can You Invest in Real Estate without Owning Physical Property?
No, owning physical real estate is necessary when investing in this economic sector. Buying these properties allows investors to access their unique economic benefits. That said, there are other ways one might make indirect investments. For example, it can be through funds that focus on real estate assets like stocks, bonds, and more.
In What Economic Sector Are Real Estate Agents?
A real estate agent is someone who deals with all types of properties, including homes and commercial buildings. In the past, they were professionals who showed homes to potential buyers or tenants.
Today real estate professionals are often contracted by companies instead (e.g., RE/MAX). But their responsibilities remain similar. Find new clients for property owners and helping them buy or rent it out again if necessary.
As cities expanded, the demand for real estate transactions doubled. Real estate agents were at the forefront, helping to buy, sell and lease these properties.
The real estate industry is massive. But to make sense of it all, you must first understand the difference between commercial and industrial real estate. There are four main categories of properties included in this sector:
- Office Buildings
- Multi-Family Housing
There are other ways for those who want to invest without owning physical property. One of them is funds that focus on assets like stocks or bonds like Real Estate Investment Trusts.
Now you know what makes up this industry’s sectors and the types of properties used in them. You can now dive into investing with a solid business strategy!
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