Investing in commercial or residential property – which is best? 6 Sep 2021
Commercial or residential property?
According to a recent analysis from a London agent, despite residential property earning significantly lower yields than commercial property, it’s still more popular with investors.
From that information alone, it seems like the answer to ‘which is best?’ might be obvious, but it’s not actually quite as cut and dry as that. There are a few things you also need to consider.
First of all, you need to look at how much money you have to invest in the first place. On average commercial investments require an initial budget of nearly £200,000 larger than residential property investments. This could be a limiting factor straight away for someone looking to invest in property, without such a high amount of initial capital.
Scotland achieves the best commercial property yields with an average of 20.4%, and they also have the best residential yields of 4.4%. If you look at an average across the UK though, commercial property investment offers annual yields of 10.7%, which is 7% higher than the average yields for residential property.
Both residential and commercial sectors have been heavily impacted by the pandemic, and this impact makes it a bit more of a challenge to say for sure where investment is best placed. However, having said that, with restrictions now lifting and businesses opening up across the UK, the commercial sector especially is set to see a bounce back.
Savills have reported that for them, July saw the highest take-up figure since March 2020 on commercial property, and is the third consecutive month where they’ve been seeing an increase. Although anecdotal, this is incredibly encouraging for the commercial sector, on the whole, showing that perhaps businesses aren’t completely ditching premises in favour of flexible home working.
Despite the commercial sector being predicted a slower recovery than the residential sector, that means there is great potential for those looking to achieve higher yields from a longer-term investment.
First-time and amateur buy-to-let Landlords in the Private Rental Sector (PRS) are likely to spend more time on tenant issues and property maintenance, whereas those investing in commercial property via a third party are taking a much more hands-off approach.
Some investors may want to roll up their sleeves and get involved, whereas others may be happier for others to manage this while watching their investments from a distance.
So, which is better?
The answer is, it depends. Commercial property requires, on average, a higher initial investment and post-covid sector recovery is slower than the residential sector which could see commercial landlords waiting longer to see higher yields.
However, there is much more residential property available especially with London and the South East accounting for 19% of all residential listings, as well as being on-the-whole more affordable for those looking to begin investing in property.
The best approach is to still evaluate each investment on a case-by-case basis, and building a mixed portfolio according to the pros and cons of each property.
Get in touch with Joel
Joel LobattoHead of Commercial Property
Joel Lobatto Head of Commercial Property
In 2008 I joined the Perry Holt & Co team. I was very privileged to have the opportunity of working with Perry as he is a successful Chartered Surveyor with intrinsic and invaluable knowledge of the sector. Perry taught me the running’s of the agency and my love for the business quickly grew. To start with I was tasked with dealing with smaller properties such as shops, offices and warehouses where I quickly grew in confidence due, I feel largely, to the interpersonal skills I had gained from hairdressing.
Throughout the 12 years Perry has mentored me and given me the confidence to take on more responsibility so I now have the experience to deal with multi-national clients, site acquisition and disposal of sites along with dealing with all aspects of commercial property. To date I have carried out over 500 deals with sales and acquisitions totalling over £100 million. I now have my own repeat clients due to my commitment of offering strong customer service and dedication to making the process as effortless and stress free as possible.
Outside of Perry Holt & Co I love spending time with family and friends. I am a petrol head and an avid Formula 1 supporter.