What is commercial real estate? I will deal with this question in this blog post. Are you wondering why I chose such a "simple" topic? Because the word itself says it all: a property in which a trade is carried out. In other words, a building in which work is carried out exclusively. But is it really explained so simply. Let me give you an example to show that the term is somewhat more complicated:
You want to sell a property where 4 families live, 1 doctor has his practice and there is a small restaurant on the ground floor.
The question arises: Is the house you want to sell a residential or a commercial property? Because some tenants live in it, the others carry out their business in the same building.
Have I made you think? You know that the distinction between commercial and residential property is decisive in a sale. Not only from a tax perspective. Then we should take a closer look at the term commercial property. In my blog post you will learn which buildings count as commercial property and how they differ from residential property.
What is a commercial property?
A commercial property is a building that is used exclusively or predominantly for commercial purposes. Commercial use is assumed if a property is used economically and the use is intended to generate a profit.
Commercial real estate can be roughly divided into the following categories:
- Commercial real estate: small shops, supermarkets, shopping centres...
- Production real estate: production halls, production factories....
- Leisure real estate: fitness centres, amusement parks...
- Logistics real estate: warehouses, distribution centres...
- Office property: Office buildings used by either one or several companies.
- Gastronomy real estate: hotels, restaurants...
Commercial real estate also includes buildings that serve a public purpose (public authorities and public companies).
Commercial or residential property: 2 criteria for classification of difficult cases
#1 Dedication of the property
In Austria, every plot of land is recorded in the zoning plan of the respective municipality. It regulates how each individual plot of land may be used. There is building land, traffic areas and grassland.
Both commercial and residential properties must be built on land that is dedicated as building land.
Building land is in turn divided into residential areas, core areas, commercial and industrial areas, mixed areas and various special areas.
The classification of residential properties is simple: they are located on land that is dedicated as a residential area. For commercial properties, on the other hand, the demarcation is somewhat more difficult.
In any case, they are commercial properties if they are located in a commercial or industrial area. But they also exist in areas with a different zoning, such as mixed areas or core areas. Here it must be checked in advance whether commercial use is permissible. In certain cases, they may also be located in residential areas (medical practices, business premises, etc.). The Tyrolean Spatial Planning Act stipulates which residential areas these are in Tyrol.
Tip from the estate agent: You want to carry out your business in a residential building? Don't just rely on the regulations of the Tyrolean Regional Planning Act, because your business practice must also be approved by the condominium owners' association!
#2 Use of the property
We already know that commercial properties are buildings that are predominantly used for commercial purposes. But what about residential properties? They are buildings that are mostly used for residential purposes.
But what if tenants have their flats in a building and others have their business premises? Then the decisive factor is which need predominates. Living or working.
Commercial property with a residential component refers to buildings in which the majority of the space is used for commercial purposes. However, if there are more private flats than business premises, then it is referred to as a residential property with a commercial share.
Would you like to know more about commercial real estate?
In this blog post, we have approached the concept of commercial real estate. But far more important for you than the term are questions like:
- How much is a commercial property worth?
- What taxes do I have to pay?
- What do I have to pay attention to when selling a commercial property?
Answering this comprehensive question would go beyond the scope of this blog post. Therefore, I have put together a separate series of posts on "Selling Commercial Property".
Here you will find the individual contributions:
- Selling commercial property: Who has to pay the broker?*
- How are commercial properties valued?
- Selling commercial property: What do I have to consider as a seller?*
- What taxes are payable on the sale of a commercial property?*
- How to sell your commercial property in 5 steps!*
* Contribution to be published by 31.1.2022 at the latest
Yours sincerely, Bernhard Großruck