Commercial real estate covers a wide range of asset types, each with its own demand drivers and risk profile. Office buildings remain under pressure in many downtown cores as remote work policies have reduced occupancy rates below 70% in markets like San Francisco and Chicago. By contrast, industrial and logistics properties, particularly last-mile distribution centers near major population centers, have seen cap rates compress to 4 to 5% as e-commerce demand drives up rents.
How commercial properties are valued
Unlike residential real estate, which relies heavily on comparable sales, commercial properties are valued primarily on income. Net operating income divided by the capitalization rate gives you the estimated value. A property generating $200,000 in NOI in a market where similar assets trade at a 6% cap rate is worth approximately $3.3 million. Lease terms, tenant credit quality, and remaining lease duration all affect the cap rate a buyer will accept.
Financing and entry costs
Commercial loans typically require 25 to 35% down, carry higher interest rates than residential mortgages, and include personal recourse provisions unless the borrower is an established entity with significant net worth. SBA 504 loans offer an alternative for owner-occupied commercial properties, allowing qualified small businesses to purchase with as little as 10% down. Multifamily properties of five or more units cross into commercial lending territory, though agency loans from Fannie Mae and Freddie Mac offer more favorable rates than bank portfolios for stabilized assets.
