Commercial facility

From CEOpedia | Management online

Commercial facility (otherwise: commercial property or commercial real estate) is an asset that is meant to generate income for the owner. Commercial facilities have meaningful impact in economic growth and development of the city. Demand for commercial facilities comes from the economic activity of companies. Since land and buildings are factor inputs in productive action, demand varies across time (as technologies of production evolve) and space (distinct locations possess advantages for different types of usage of land[1].

Categories of commercial properties

Commercial facilities can be divided into different categories, that are mostly related to sectors of employment. We can distinguish[2]:

  • Retail buildings,
  • Office Property,
  • Business opportunity,
  • Industrial Facility,
  • Ranch or Farm,
  • Shopping Center,
  • Medical Property,
  • Multifamily building,
  • Vacant Developable Land.

Every type of commercial real estate finds different usage, and each has its own way to make money from.

Commercial facility’s prices

Commercial facilities have diverse and troublesome financial features in comparison to different asset classes. The value of commercial real estate in relation to separate types of fixed capital has increased, because the cost of equipment investment goods in the world, has been decreasing promptly since the 1960s. The price of commercial properties is mostly decided by its income-generating ability. The price is also determined by land plot value, and cost of the building. Improvement value or rental price might also be used in measuring value of commercial real estate[3].

Devaluation of commercial facilities

Studies have shown, that there exists a contact between exchange rate volatility and returns of commercial facility investments. Considering tax policy, commercial properties have a tendency to depreciate in a fairly geometric sequence, with a rate between 2% to 4% of the enduring price of a building per year. When it comes to non-residential land, the highest percentage of devaluation is observed in office facilities and retail buildings, and industrial properties experience the slowest loss of value[4].

Examples of Commercial facility

  • Retail Shopping Centers: Retail shopping centers are commercial facilities that contain a variety of stores, restaurants, and other businesses. Shopping centers can vary in size from a few hundred square feet to several million square feet. Examples of well-known retail shopping centers include the Mall of America, The Grove in Los Angeles, and the Shops at Columbus Circle in New York City.
  • Office Buildings: These are the commercial facilities that are used to house the offices of businesses. Office buildings can vary in size, from single-story buildings that house a few offices to multi-story skyscrapers that house hundreds of offices. Examples of well-known office buildings include the Empire State Building in New York City, the Chrysler Building in Detroit, and the Willis Tower in Chicago.
  • Industrial Facilities: Industrial facilities are commercial facilities used to produce and process goods. They often include warehouses, factories, and other large buildings. Examples of well-known industrial facilities include the Ford Motor Company Assembly Plant in Dearborn, Michigan and the Boeing Everett Factory in Everett, Washington.
  • Hospitality Facilities: Hospitality facilities are commercial facilities that provide lodging, food, and entertainment for guests. Examples of well-known hospitality facilities include the MGM Grand in Las Vegas, the Bellagio in Las Vegas, and the Four Seasons in Chicago.

Advantages of Commercial facility

Commercial facilities have several advantages that make them attractive investments. These include:

  • High rental yields - Commercial real estate usually has higher rental yields than residential investments, which can provide investors with a steady stream of income.
  • Tax Benefits - Commercial real estate owners can benefit from tax breaks and deductions, such as depreciation and property tax deductions, which can reduce the taxable income of the business.
  • Appreciation - Commercial properties tend to appreciate in value over time, meaning that the owner can benefit from capital gains when the property is sold.
  • Flexibility - Commercial properties can be used for a variety of different uses, depending on the needs of the owner. This can include office space, retail space, industrial space, or even residential.
  • Long-Term Investment - Commercial real estate is a long-term investment, so the owner will continue to benefit from the property for many years.

Limitations of Commercial facility

  • The value of a commercial facility is dependent on its location and local market conditions. This can create a risk for an investor if the market is not favorable for the type of facility purchased.
  • Commercial facilities may have a limited lifetime and require periodic maintenance and upgrades to remain competitive.
  • Purchasing a commercial facility is a major investment, and depending on the size and complexity of the facility, it can be difficult to accurately assess the total cost of ownership.
  • The financing of a commercial facility can be difficult to secure, as banks may be reluctant to lend to certain types of businesses or locations.
  • There can be significant tax implications associated with commercial facilities, including property taxes, income taxes, and other taxes.
  • Zoning regulations and other local laws can limit the types of activities that can take place in a commercial facility and can affect the value of the property.

Other approaches related to Commercial facility

A comprehensive understanding of commercial facility requires looking at other approaches such as:

  • Real Estate Economics: This approach frames commercial facility through the lens of the real estate market, applying the principles of economics to the supply and demand of real estate assets. This can help to inform decisions about how to price and market commercial facility.
  • Real Estate Financing: This approach looks at the use of financing to purchase or develop commercial facility. It can include the use of loans, mortgages, and other forms of debt and equity capital.
  • Development Feasibility Analysis: This approach examines the development process and identifies potential opportunities and risks associated with the development of commercial facility. It assesses the financial feasibility of a project, including the potential return on investment.
  • Property Management: This approach looks at the management of a commercial facility, including tenant acquisition and retention, lease negotiation, maintenance and repairs, and other operational activities.

In summary, understanding commercial facility requires looking at other approaches such as real estate economics, financing, development feasibility analysis and property management.


  1. Ball M., Lizieri C., MacGregor B.D. (1998)
  2. Keim L.K. (2007)
  3. Yu H., Pang H., Zhang M. (2018)
  4. Wang T., Wang Y., Zhao X., Fu X., (2018)

Commercial facilityrecommended articles
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  • Ball M., Lizieri C., MacGregor B.D. (1998), The economics of commercial property markets, Routledge, London and New York
  • Conti P., Harris P. (2008), Commercial Real Estate Investing For Dummies, Wiley Publishing, Indianapolis
  • Keim L.K. (2007), The fundamentals of listing and selling commercial real estate, Infinity Publishing
  • Tagg A. (2019), Technical Due Diligence and Building Surveying for Commercial Property, Routledge, Abingdon and New York
  • Wang T., Wang Y., Zhao X., Fu X. (2018), Spatial distribution pattern of the customer count and satisfaction of commercial facilities based on social network review data in Beijing, China, "Computers, Environment and Urban Systems", Vol. 71, September 2018
  • Yu H., Pang H., Zhang M. (2018) Value‐added effects of transit‐oriented development: The impact of urban rail on commercial property values with consideration of spatial heterogeneity, Papers in Regional Science, Vol. 97 Issue 4, November 2018

Author: Bartłomiej Bargiel