The differences between a commercial apartment (non-residential space) and a residential apartment are especially important in the context of commercial real estate, as they define the property’s potential uses, operating costs, legal obligations, and investment value. Our Head of Commercial Real Estate Development, Kristi Tamm, explains in more detail.

1. Intended Use and Income Generation
Commercial Apartment:
Typically intended for business use—such as offices, retail, service spaces, or short-term rentals like Airbnb. These properties offer a wide range of potential uses, allowing the owner to generate income from multiple sources. The income potential depends on location, the intended use of the space, and market conditions.
Residential Apartment:
Primarily intended for long-term living. While these can be rented out to tenants, the income potential is more limited and tied strictly to the residential rental market. Rental income is generally more stable but typically lower than with commercial units.

2. Investment Potential and Value Growth
Commercial Apartment:
These units can offer higher capital growth, especially when located in developing business areas. However, their value is more sensitive to the overall economy and local business climate. Investing in a commercial apartment involves higher risk but also potentially greater returns.
Residential Apartment:
The value is mainly driven by demand in the residential housing market. Residential units tend to be more stable investments due to constant demand for housing, though the pace of value growth may be slower.

3. Management and Costs
Commercial Apartment:
Typically more complex and expensive to manage. Utility and maintenance costs are higher, and additional investments may be required to tailor the space to a specific business need.
Residential Apartment:
Easier to manage with generally lower costs. Utilities and maintenance are simpler, as residential units are subject to less stringent requirements.

4. Legal and Regulatory Differences
Commercial Apartment:
Subject to different legal regulations and standards. Specific business licenses may be required, and building codes or usage permissions may differ. These rules can directly affect how the space can be used and thus impact the investment return.
Residential Apartment:
Governed by regulations aimed at comfort and safety for living purposes. Requirements are generally less complex, reducing legal risks and simplifying management.

5. Marketing and Leasing
Commercial Apartment:
Requires a more tailored marketing approach and deep understanding of the commercial rental market. Shorter lease terms can lead to higher tenant turnover, impacting income stability.
Residential Apartment:
Easier to lease out due to a broader target audience and constant demand for housing. Long-term tenants provide steady cash flow and lower the management burden for the owner.
Understanding these differences is crucial when making investment decisions in real estate. Choosing between a commercial and residential apartment depends on your goals, risk appetite, and preferred management style.