Commercial Buildings: Definition, Types and Tips

Updated March 10, 2023

Commercial buildings are an important part of doing business, both for those who own them and for those who rent them. A commercial building could contain one or more of many types of businesses, including retailers, restaurants, offices or manufacturing. If you are planning to open a business with a physical location or you want to own and manage commercial properties, it's important to understand what this involves.

In this article, we explain what commercial buildings are, different types of commercial buildings, why it's important to understand commercial buildings, what a commercial lease is and tips for negotiating a commercial lease.

What is a commercial building?

Commercial buildings are buildings where commercial activities take place. Commercial buildings include office buildings, retail space, warehouses and more. This differs somewhat from commercial property, which also includes multi-family buildings like apartment buildings. The reason for this is that commercial buildings are where commerce happens, while commercial property earns money for its owners but doesn't have to have commerce happening in it. Multi-use buildings that have a mix of spaces, such as a retail area and apartments, can still be considered commercial in certain circumstances.

Related: How To Become a Commercial Real Estate Agent

Types of commercial buildings

Here are some of the types of commercial buildings:

Office buildings

Office buildings are a common type of commercial building that can be found in cities and even towns of any size, depending on the needs of the community. An office building might be only one story or it might be a skyscraper, depending on where it's located and how much the developer wants to invest into it. The owner of an office building might have offices within it, or they might rent out the entire building. In an office building, the tenants might be just one company or they might be many companies even on the same floors.

Restaurants

Restaurants are another common type of commercial building. For buildings that contain just one restaurant and aren't a multi-use property, the owner may be the owner of the restaurant or they may lease the building to the restaurant owners. This is true whether the restaurant is a franchise, a chain or an independent restaurant. A restaurant building might be custom built for the tenant based on brand standards, or it might be built to work for any restaurant tenant. Restaurant buildings often have advanced requirements compared to other commercial businesses due to their kitchens.

Related: How To Open a New Restaurant

Retail

Retail spaces are a type of commercial building that many think of when thinking of a commercial type of space. Retail is any type of store or shop, ranging from big box stores that fill an entire warehouse-style building to small retailers in a building with other retail businesses. For this reason, a retail building might only have space for one business or it might have multiple retail spaces, like a strip mall. Retail buildings almost always have a storefront so that customers can walk in directly, although in some situations like malls, the access can be inside the building.

Related: 14 Careers in Retailing

Hotels

Hotels are another type of commercial building, although it may seem that they qualify as a residential building and thus not commercial. Because hotels are more of a commercial business than just renting apartments, and the turnover is usually faster, they are generally considered commercial. Some hotels are small, one story roadside motels, while others are skyscrapers with other businesses inside them like restaurants and retail. The hotel owner might also own the building, or they might lease it, depending on a variety of factors.

Warehouses

Warehouses are a type of commercial building that is common in many places, from large cities to rural areas. Warehouses are usually a storage hub for another type of business, such as a logistics and shipping company using a warehouse to store their packages as they process and transport them or a retail company keeping stock in a warehouse until it's needed in a store. Warehouses might be a brief stop for what they hold or they might be a long-term storage facility. Some warehouses need careful climate controls because of the types of things stored there.

Industrial

Industrial buildings are actually a broad range of buildings including manufacturing facilities, workshop facilities and even certain types of warehouses are considered industrial. An industrial building might have hazardous chemicals in it, it might have heavy machinery or it might serve customers as with an auto shop. Even though industrial buildings can contain such a wide range of business types, many times they are all grouped together because of potential noise or hazard issues. This keeps these types of buildings from being too close to residential neighborhoods, although of course the distance can vary depending on the city or town.

Healthcare

Healthcare may not seem like a commercial business, but many hospitals and clinics are commercial enterprises aimed at earning money and serving customers, which in healthcare are called patients. Because of this, healthcare facilities are considered a type of commercial building. This can range from large hospital campuses to small clinics. The larger hospital buildings are usually owned by the hospital owners and custom-built for their needs, while small clinics might be found in their own small building or a multi-use building that they lease a space in.

Related: Why Work in Health Care? 8 Reasons To Consider a Career in Health Care

Multi-use

A multi-use commercial building is one that has a variety of tenants. These tenants might include restaurants, retailers, offices and even health care facilities. It can also include residential rentals, and would still be considered commercial as long as 51% of the tenants were commercial tenants and not residential. Multi-use buildings can be a good investment for developers as they don't rely on any one specific type of business, which can offer some security.

Why is it important to understand commercial buildings?

It's important to understand commercial buildings for a variety of professionals. If you plan to start your own business and will need a physical location, you'll want to know what types of commercial buildings you could operate out of and how local zoning laws might affect your business. If you are working in real estate, you'll want to know the differences between residential and commercial buildings to be able to assist your customers effectively.

If you're a developer, work in construction, design buildings as an architect or engineer or are in any other way related to the creation of commercial buildings, you'll want to know not only what makes them commercial but also what laws and codes apply to different types of commercial facilities. The needs of a commercial building's infrastructure can vary quite a bit from the needs of a residential building.

What is a commercial lease?

A commercial lease is the lease a business owner signs with the owner of a building or space they'll be renting. This is similar to a residential lease someone would sign for an apartment or house, however there are differences between the two types of leases. The biggest difference is that commercial leases don't have the same consumer protections and requirements of a residential lease, so those signing a commercial lease will want to be extra careful and potentially consult a lawyer to understand what is being signed.

Commercial leases can be negotiated, and since there are so many aspects to a commercial building that might need to be included in the lease, it's helpful to plan for what you want to ask for as you're negotiating. This applies to both the real estate owner and the business owner.

Related: How To Become a Real Estate Developer

Tips for negotiating a commercial lease

Here are some of the aspects of a commercial lease you might want to consider as you're negotiating:

  • Because commercial leases don't have a standard format or standard things that must be included by law, you might want to consult with a lawyer.

  • You can negotiate nearly everything in a commercial lease, including the length of the lease, the rent and the security deposit.

  • There should be a clear way listed in the lease as to how to resolve any potential issues, which might include anything from who handles repairs to ending the lease.

  • You may also need to negotiate to ensure your ability to display signs for your business outside the building and in the windows.

  • It's best to avoid assuming anything is included and instead have it written in the lease, such as any fixtures, appliances or furniture that you want the landlord to provide.

  • It can be helpful to understand the Americans with Disabilities Act (ADA) and how that impacts businesses, including requirements for accessibility, and be sure you know who is responsible for your business being compliant with the ADA.

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