Commercial land is a distinct classification for real estate. Commercial land not only differs because it is where businesses are usually located but also because it is treated differently by municipalities, utilities and other infrastructure providers. Commercial real estate is appraised differently than residential real estate. Whereas residential real estate will generally appreciate annually at a given rate, commercial land value can fluctuate wildly depending on its location and what other businesses are located (or going to locate) nearby.
Commercial land can be any plot or subdivided area of land used for commercial purposes. “Commercial” means the land is used for businesses, manufacturing plants, warehouses, parking lots and even profit-generating residences. Apartment complexes are considered commercial land.
Municipalities with zoning regulation will determine if property is commercial, residential, agricultural or public land. Zoning variances can change property designations depending on special situations and circumstances. An example would be a shop zoned commercial with the owner living on the premises. If the business closes, then redesignating the land would be appropriate.
What can be a difficult aspect with zoning and commercial land is getting land rezoned. An example would be a vacant lot next to a highway where someone wants to build a store. Unfortunately, this land is located directly next to a residential neighborhood. Commercial building, parking lots, street lights and traffic could have an adverse affect on the homeowners' land value. In such a case allowing the store right next to homes would be detrimental to the homeowners, and the zoning change could be refused.
When considering purchasing land for commercial interests, first determine the zoning for the land and whether a change in the zoning is possible. If not, then this could be a good indication why the land is vacant–no one is able to build either a business near the homes or a home near the highway.
Some land can be a combination of commercial, residential and agricultural. Residential property with a small business located on the property can be deemed mixed use. Farms with leased property to businesses are also considered mixed use.
Multifamily land can be either commercial or residential land depending on local zoning ordinances. As already mentioned, apartment buildings can be such property. Other examples are tenant home developments and resort or vacation rental property. Any land use intended for profit-generating enterprises can be deemed commercial.
The reason it’s important to distinguish between commercial and other types of properties is property taxes. In all areas, tax rates are set higher for commercial property than residential or agriculture. The reasoning is the business owner is using land within the municipality’s boundary to generate and earn a profit. As such, the business should pay a higher tax rate since this profit-making enterprise is made possible by the town, county or city.