Differences Between Residential Properties and Commercial Properties
Residential and Commercial properties present different needs and challenges to property managers. These property types have differences in their tenants, legal needs, maintenance, finances and intentions. These areas show ways in which these two types of properties, and the property management they need, vary.
What are residential properties?
Residential properties are buildings used or designed to be suitable for one or more dwellings and used as living space. They can be for an individual or household to inhabit. Examples can include but are not limited to houses, multi-unit apartments, townhouses and condos.
What are commercial properties?
Commercial properties are buildings used for business purposes and not used for domestic dwellings. Different types can be offices, retail, industrial, leisure and healthcare. Examples can include office buildings, retail stores, warehouses, industrial facilities, hotels, shopping centres or mixed-use buildings.
Tenants
Tenant relationships
- Residential
Residential property tenants live in the properties and have more constant interactions with landlords. Property managers also have more long-term relationships with tenants as they are directly involved with their living needs. They expect attentive customer service and will likely make contact often to discuss repairs, complaints or general questions. - Commercial
Commercial tenants are business owners rather than residents and as they do not live in these properties that means communication is not as frequent. Interactions with tenants are instead business-oriented and transactional. Focus is placed on maintaining the function and marketability of the property.
Rental demand
- Residential
Residential property demand is typically higher as everyone needs a home to live in and the population is always growing. This is especially true for properties close to schools and universities. Families and university students have a high demand for properties in proximity to these. - Commercial
Commercial property demand depends on many factors but especially the state of the economy. When the economy is strong there is a higher demand for commercial spaces and when it isn’t rental demand decreases.
Turnover/Vacancy rates
- Residential
Residential properties have higher turnover rates because of their shorter tenancies. The high turnover rate means more time is spent on finding tenants. However, due to the demand for housing, it is easier to find new tenants and less expensive when it is vacant. - Commercial
Commercial properties have lower turnover rates because they have much longer tenancies. However, when properties are vacant it is harder to find new tenants, especially when business demand is low, and more costly to keep without having the income from rent.
Marketing tactics
- Residential
Residential marketing is directed towards individuals and families. For example, marketing can place emphasis on proximity to schools/universities and community features. Marketing often focuses on location benefits that make the property more attractive. - Commercial
Commercial property marketing is directed toward businesses and showcases features such as location, accessibility and suitability for different business types. Marketing the property as a professional space that can suit business requirements.
Legal
Regulations
- Residential
Residential regulations are stricter than commercial, they focus on tenant rights and safety. Property managers can help ensure landlords comply with these regulations, as they work with them and must remain up to date with changes. - Commercial
Commercial property regulations are strict. Examples including zoning laws, health and safety and building codes are important to commercial properties. Tenants are also considered more responsible for adhering to regulations specific to the business.
Legal requirements
- Residential
Residential properties follow different landlord-tenant laws varying on location. These include tenant protection, eviction processes and living standards. Property managers must be up to date with all legal requirements. - Commercial
Commercial properties have complex legal frameworks that property managers must navigate, relating to business operations and complex lease agreements. It is important that property managers are familiar with them to avoid fines or legal disputes.
Lease agreements
- Residential
Residential property lease agreements are between landlords and tenants. Their lengths can be fixed-term or periodic, typically running for one year or on a month-by-month basis for periodic tenancies. These leases are more straight-forward and follow local landlord-tenant laws. - Commercial
Commercial property lease agreements are between landlords and business tenants. Compared to residential lease agreements, there are fewer governmental protections for tenants. They are typically fixed-term agreements, and not usually shorter than a year long, as commercial property is a large commitment. There is also more room for negotiating the agreement as both parties are typically well-versed in business practices.
Maintenance
Maintenance tasks
- Residential
Residential properties involve typically much smaller scale everyday maintenance although it is more hands-on and frequent. Maintenance is often carried out by landlords, tenants or small-scale contractors. It requires quick responses to ensure tenants are safe in their rented homes. - Commercial
Commercial properties typically require more specialised maintenance and more expertise. Due to the varied scale of commercial properties, the size of maintenance teams or contractors can be much larger than for residential properties.
Operation challenges
- Residential
Residential property management typically deals with tenant issues, maintenance and repairs. Challenges in operation often come from frequent emergencies or sudden repair needs. Keeping on top of these issues and ensuring that they are resolved quickly for tenants is important. - Commercial
Commercial property management deals with business needs, property use and navigating complex lease agreements. As well as managing any specific property uses in different industries. Challenges often come from the scope and complexity compared to residential properties.
Responsibilities
- Residential
Residential property maintenance responsibilities lie with the tenants, the landlord and the property manager. Tenants carry out basic house maintenance to ensure it is clean and in sound condition, landlords can perform other maintenance or repairs themselves or via their own contractors and property managers can organise maintenance teams or contractors for landlords. - Commercial
Commercial tenants can be responsible for their own maintenance and repair costs depending on the lease agreement they have, such as a ‘triple net’ lease. Triple net leases are lease agreements that give tenants responsibility in exchange for potentially lower rent costs. This means there is less day-to-day involvement for property owners and property managers.
Financial
Return on investment
- Residential
Residential investment is usually much lower than commercial properties which makes it more accessible. There is less risk with residential properties making the investment less as well. Instead of high returns, residential properties offer steady growth over time. - Commercial
Commercial properties generate a higher return on their investment due to the typically higher rent costs for businesses. However, the initial investment is often around a third of the property value as there is a lot more risk associated with commercial properties.
Financial management
- Residential
Residential property managers handle tasks such as tracking tenant payments, assisting with payment plans or issuing late notices for payments. Financial management for residential properties is more focused on tenant rent. - Commercial
Commercial properties require property managers to manage large-scale financial operations. It requires effective financial management to maximise profit potential and ensure tenants are meeting financial obligations.
Property value
- Residential
Residential property value is influenced by current market trends. However, compared to commercial properties, the demand for housing means that properties can avoid dramatic value declines. Population growth in areas can lead to higher demand and help raise the value too. - Commercial
Commercial property value is affected by economic conditions, which can make selling at a desired price point difficult because of the sensitivity to market conditions. The value is also affected by the income it generates, growing when the business is thriving and boosting interest for surrounding properties.
Intentions
Purposes
- Residential
Residential properties are rented by tenants seeking a home, so the purpose of these properties is to provide shelter and comfort. Alongside this, their purpose is also to earn profit through tenant rent which property managers support through upgrades and value from maintenance. - Commercial
Commercial properties are leased for business use and intended to generate profit through their business. Alongside this, their purpose is to be professional spaces for business operations.
Objectives
- Residential
Residential property management objectives are typically improving profits, reputation, quality of life and appearance. Ensuring that the property is a comfortable environment for tenants to live is important and maintenance supports this. - Commercial
Commercial property management objectives are typically improving business-related profits, reputation and functionality. As well as ensuring that the building is suitable for business operations.
Conclusion
In conclusion, residential and commercial properties vary in how they need to be managed because of their differences. They have distinct requirements and require different sets of knowledge to effectively manage them. Their contrasting scales of operation and complexity add to this.
Because of these differences and the specific knowledge required, you should make sure that you choose a property management company who is specialised or practised in both.
At Blocsphere we support property owners with residential block management and commercial property management. Our years of experience in both makes our staff highly qualified to find solutions to your property troubles and increase your profits. Get a free no-obligation management fee estimate from Blocsphere today and let us help you with your maintenance needs.
