Real estate encompasses various types of properties that serve different purposes. Understanding these categories can help investors, buyers, and developers make informed decisions.

Each category offers unique opportunities and challenges, catering to various needs and goals within the real estate market. Whether you’re interested in residential properties, commercial spaces, industrial facilities, land, or special purpose properties, a thorough understanding of these categories can help you navigate the real estate landscape effectively.

The real estate types listed below are just examples from every-day speech. In a legal context, the specifications can be different, and they can also vary from one jurisdiction to another, which is important to understand.

Sometimes, a specific building will fit into more than one category and subcategory.

Tip! If you are interested in investing in real estate, you might also want to take a look at Real Estate Investment Trusts (REITs), since they offer a convenient way of getting exposure to the real estate market without owning real estate outright. You will find more information about REITs further down in this article.

1. Residential Real Estate

Residential real estate includes properties designed for people to live in. This category is very diverse and can be subdivided into many subcategories, such as:

• Single-Family Homes: Detached houses designed for one family. They offer privacy and often come with a yard or garden.
• Multi-Family Homes: Buildings designed to accommodate more than one family, such as duplexes, triplexes, and fourplexes.
• Apartments: Units in a building with multiple dwellings, often rented rather than owned.
• Condominiums (Condos): Individually owned units in a building with shared common areas.
• Townhouses: Multi-story homes that share one or more walls with adjacent properties, often with a small yard.
• Cooperatives (Co-ops): Buildings owned by a corporation with residents owning shares of the corporation, rather than individual units.

2. Commercial Real Estate

Commercial real estate includes properties used for business purposes. These properties typically generate income through leasing or renting. Of course, real estate belonging to other categories are often also used for business purposes. Industrial real estate (see category #3 below) are for instance commonly utilized by enterprises, and can be leased or rented out.

Examples of common types of commercial real estate:

• Office Buildings: Spaces designed for business operations, ranging from small buildings to skyscrapers.
• Retail Spaces: Properties for businesses selling goods and services, such as shopping centers, malls, and standalone stores.
• Industrial Properties: Facilities for manufacturing, production, distribution, and storage, including warehouses and factories. They are sometimes placed in a category of their own, see category #3 below.
• Hotels and Hospitality: Properties offering lodging and accommodation services, including hotels, motels, and resorts.
• Mixed-Use Developments: Projects combining residential, commercial, and sometimes industrial spaces in a single complex.

3. Industrial Real Estate

Industrial real estate involves properties used for industrial purposes, including manufacturing, production, and storage.

• Manufacturing Facilities: Buildings where goods are produced or assembled.
• Warehouses: Structures used for storing goods, often featuring large open spaces and loading docks.
• Distribution Centers: Facilities specifically designed for receiving, storing, and distributing products.
• Flex Spaces: Properties that can serve multiple purposes, such as offices combined with manufacturing or storage spaces.

4. Land

Land encompasses all undeveloped or minimally developed property, including agricultural and vacant land.

• Agricultural Land: Used for farming, livestock, and other agricultural activities.
• Undeveloped/Vacant Land: Land without significant structures, often held for future development or conservation.
• Recreational Land: Used for recreational purposes like parks, campsites, and hunting grounds.

5. Special Purpose Real Estate

Special purpose real estate includes properties designed for a specific, unique use.

• Educational Institutions: Buildings for schools, colleges, and universities.
• Religious Facilities: Structures like churches, temples, and mosques used for worship and religious activities.
• Government Buildings: Properties owned and used by government entities, including courthouses, police stations, and post offices.
• Healthcare Facilities: Buildings for medical services, such as hospitals, clinics, and nursing homes.
• Entertainment Venues: Properties like theaters, cinemas, and sports stadiums.
• Transportation Hubs: Facilities for transportation services, including airports, train stations, and bus depots.

What are Real Estate Investment Trusts (REITs)?

REITs are companies that own, operate, or finance income-producing real estate across various sectors. They offer a way to invest in real estate without directly owning property.

• Equity REITs: Own and manage income-generating properties.
• Mortgage REITs: Provide financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities.
• Hybrid REITs: Combine the investment strategies of equity REITs and mortgage REITs.

When REITs first appeared in the United States back in the 1960s, most of them focused on mortage companies. Towards the end of the decade and into the early 1970s, there was a strong growth in mortage REITs, chiefly based on land development and construction deals.

Are REITs always trusts (in the United States)?

No. Despite the name, REITs are not always trusts. They used to be, but the Tax Reform Act of 1976 made it possible for REITs in the U.S. to be established as corporations instead of business trusts.

Understanding the background for REITs

Even though investing in real estate, alone or in groups, is a time-honoured tradition, REIT as a specific concept did not arise until the 1960s. As with many other modern investment forms, the concept was concieved in the United States.

It was U.S. President Dwight D. Eisenhower that signed Public Law 86-779 (“The Cigar Excise Tax Extension of 1960”), thereby creating the REIT concept as investors now had a special vehicle for use when investing in large-scale, diversified portfolios of income-generating real estate. Shares in a REIT could be bought and sold just like other liquid securities, e.g. stocks and bonds.

One of the people who pushed for this part of the new law was Virginia U.S. Congressman Joel Broyhill. The very first REIT to be established once the new law came into effect was the American Realty Trust, which was founded by Broyhill´s cousin, the investor Thomas J. Broyhill, in 1961.

Are REITs only available in the United States?

No. The concept was invented in the United States, but has since spread to many other parts of the world. As of 2024, REITs exist in roughly 40 countries.

Examples of important milestone for U.S. REITs

• Public Law 86-779 (“The Cigar Excise Tax Extension of 1960”)
• Tax Reform Act of 1976
• Tax Reform Act of 1986. It plugged some loopholes that taxpayers had been using to shelter earnings from other sources by putting them into partnerships. Three years after the enactment of this law, REITs were taking heavy losses.
• In 1992, Retail REIT Taubman Centers Inc. created the first UPREIT. In an UPREIT, the parties of an existing partnership and a REIT becomes partners in a new operating partnership. In a classic UPREIT, the REIT is the general partner and owns a majority of the operating partnership units. The parthners who have contributed properties have a right to switch their operating partnership units for REIT shares or cash.
• The 2007-2008 global financial crisis had a huge impact on the real estate market (and vice versa), and many U.S. REITs tried to manage the situation by selling stock to obtain cash (re-equitizing) and paying off debt (de-leveraging). Many raised substantial amounts of cash through secondary equity offerings, and investors were also generally positive to unsecured debt offerings by U.S. REITs at this time.

Index speculation

Another way to gain exposure to the real estate market is to speculate on a real-estate based index. There is for instance the famous FTSE EPRA/Nareit Global Real Estate Index Series, created in 2001 by FTSE Group, Nareit and the European Public Real Estate Association (EPRA). Some twenty years later, the global index included 490 publicly traded real estate companies, spread out over roughly 40 different countries. In total, they represented an equity market capitalization of circa 1.7 trillion USD.