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Best Investment - resi or commercial? An agent advises landlords

A new analysis by a London lettings agency has assessed the relative investment merits of residential and commercial property.

Benham and Reeves has assessed that when it comes to the initial cost of investing, the average residential property requires a budget of £259,850. However, with an average value of £454,384, a commercial investment will require a budget some 75 per cent larger on average.

Where stock availability is concerned, and using property portals to compile the data, the residential market also offers up far greater choice with 541,966 listings versus just 12,022 across the commercial space. 

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The value of the market is also more substantial, worth an estimated £251.5 billion while the commercial market comes in at almost £9 billion in value. 

London and the South East rank top for resi stock availability, accounting for 19 per cent of all listings, with the East of England next on 12 per cent. 

Those eyeing a commercial investment are better placed investing in the South West and North West, accounting for 13 and 12 per cent of all commercial stock respectively. London ranks third with 11 per cent. 

While the commercial sector may be smaller in both volume of stock and values it could prove the better option for the individual investor, says the agency. 

On average across the UK, a commercial investment will bring a yield of 10.7 per cent, while the average residential property offers a yield of just 3.7 per cent. 

Currently, Scotland and the North West offer the highest residential yields at 4.4 and 4.3 per cent, while Scotland is also home to the highest commercial yield at 20.4 per cent, along with the South West on 13.7 per cent. 

Agency director Marc von Grundherr says: “It’s fair to say that both the residential and commercial markets have been impacted by the pandemic and so it’s hard for investors to know where to put their money at present. 

 

“There are a plethora of factors to consider from your initial investment level, which sector to choose and the ongoing requirements, capital gains potential, as well as the regional disparities across these sectors in each region of the UK. 

“While a commercial investment may offer a higher yield, the recovery timeline as a result of the pandemic is set to stretch on far longer than that of the residential rental market and residential property investment remains by far the dominant force where availability, affordability and total sector value is concerned.

“However, commercial investment can provide a more hands-off approach for those doing so through a third-party platform, while the amateur buy to let landlord is sure to spend more time sorting out tenant issues and so on. 

“The best approach is a balanced portfolio and one that considers the pros and cons of each market from both a residential and commercial standpoint.”

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  • George Dawes

    Regarding commercial property , don't forget to factor in business rates , which are often higher than the rent and unlike the rent are non-negotiable , so much for the re generation of the high street

    Personally I'd avoid buying commercial property like the plague

    I rent out two shops and I’d change them to residential if my useless council would let me . They pontificate about high street vitality when it’s really all just a cash cow to them .

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