Commercial UK properties offer exciting opportunities for investors

While residential buy-to-let properties are the more traditional go-to for property investors, commercial property offers a wonderful opportunity for portfolio diversification and consistent earning potential.

2025 has seen the market grow thanks to a stabilising economy, easing inflation and potential further interest rate cuts boosting investor confidence.

According to the CBRE UK Monthly Index capital values for UK commercial real estate rose by 0.3%, while rental values rose by 0.4% in March. Total returns were 0.8% during the month, with commercial real estate providing a total return of 2.1% for Q1 2025.

What is a commercial property?

Essentially, a commercial property is any property that is designed for commercial use and business rather than living in. There are many different types of commercial property, including office space, retail strips and stores, warehouses, factories and medical facilities among others.

How does it differ from buying and renting residential property?

While commercial property usually has a higher initial payment and investment required, it also tends to have a higher profit margin. This means that putting down a larger investment in the beginning could offer a better return on investment in the long run. Below we explore why this could be the case.

Higher income potential

The commercial market offers a large variety of properties that can suit your investment needs and offer yields from 5% to 8%, compared to residential yields of 2% to 5% in many UK regions. As an example, if you were to invest in a shopping centre, you would have the opportunity to rent to multiple businesses. And if you bought a multi-story office building, you could rent each floor to a different company, as opposed to a house or flat only providing one monthly rental payment per property.

Longer lease terms

Generally speaking most businesses lease a property for longer periods of time compared to residential tenants, which typically run on 6 to 12 month agreements, with commercial leases signed between five and ten years at a time, providing landlords a consistent income over that period of time, and reducing the risk of the property being left without a tenant as often.

Additionally, many commercial tenants, especially established businesses, franchises, or professional services, value continuity and location stability, making them more likely to renew or extend their leases.

Demand in growing sectors

Commercial property investors in the UK are benefiting from strong demand in fast-growing and evolving sectors like e-commerce hubs, data centres and flexible office space rentals.

As a result of growing e-commerce dependency warehouses, distribution centres, and storage facilities are in high demand across the UK, especially near major transport hubs and urban centres.

Flexible office spaces and hybrid working hubs are also in demand, especially in regional cities where businesses are shifting away from large city-centres in favour of more adaptable and cost-effective areas. This trend is opening up new opportunities in suburban and secondary markets, with regional cities like Manchester, Birmingham and Leeds experiencing booms and investors experiencing lower entry costs and higher yields.

Stability against market volatility

Commercial property is considered a relatively safe bet against market volatility because it tends to offer stable, long-term income that is less directly affected by short-term fluctuations in the stock market or broader economy.

Unlike equities or cryptocurrencies, which can be devalued wildly based on investor sentiment or global events, commercial property like office buildings, warehouses and retail spaces are grounded in real assets with tangible value and utility, continuing to generate income even during periods of uncertainty.

Thanks to long-term lease agreements, tenants, especially those in resilient sectors like healthcare, logistics, or essential retail, typically remain committed to their locations, ensuring steady rental income for investors. Property values themselves also tend to move more gradually than financial markets, providing stability against daily volatility.

Tax benefits

Stamp duty land tax applies to both commercial and residential property transactions, but rates for commercial properties are generally lower than those for residential properties, especially at higher transaction values. As of April 2025 if you buy a new non-residential or mixed use leasehold property, stamp duty is payable on both the lease premium or purchase price ‘net present value of the rent payable (based on the value of the total rent over the life of the lease). If the net present value is under £150,000 the stamp duty rate is zero, and over £150,000 is 1%.

Tailor my Property

The UK’s commercial property market offers investors the opportunity to expand and diversify their rental property portfolios.

That said, thorough research and market experience are essential to help identify prime regional locations and opportunities, understand local market dynamics and legislation, and assess potential risks. Tailor my Property offers an experienced network of property, investment and financial professionals who can assist with specific goals and queries across the broader United Kingdom.

Get in touch today.