Property has long been a popular investment choice, but should you invest in residential property or commercial premises?
Both can offer attractive returns, but they come with different risks, responsibilities and legal considerations.
What’s the difference between residential and commercial property?
The main distinction is simple:
– Residential property is designed for people to live in, such as houses, flats and apartments.
– Commercial property is used for business purposes, including shops, offices, warehouses and industrial units.
While both can generate rental income and potential capital growth, the way they are managed and regulated differs considerably.
Who is responsible for repairs and maintenance?
Residential property
In most residential tenancies, landlords are responsible for maintaining the structure of the property and ensuring key systems, such as heating, plumbing and electrics, are in good working order.
Landlords typically bear the cost of wear and tear to features such as kitchens, bathrooms and communal areas. Service charges may also fall to the landlord, depending on the property and tenancy agreement.
Commercial property
Commercial leases often place greater responsibility on the tenant.
Many leases include:
- A Schedule of Condition, which records the property’s condition at the start of the tenancy.
- A Schedule of Dilapidations, which identifies repairs or maintenance that the tenant may be required to carry out during or at the end of the lease.
- Many commercial leases are structured as Full Repairing and Insuring (FRI) leases, meaning the tenant is responsible for most maintenance, repair and insurance costs associated with the property.
- Service charges are also commonly recoverable from the tenant, although the exact arrangements depend on the lease.
What happens if rent isn’t paid?
Residential property
Since the introduction of the Renters’ Rights Act in England, landlords can no longer rely on Section 21 “no-fault” evictions. Landlords must now use specific legal grounds for possession, and court proceedings are often required.
As a result, recovering possession of a residential property can take several months, depending on the circumstances and court timescales.
Commercial property
Commercial landlords generally have a wider range of remedies available where rent arrears arise.
Depending on the lease terms, landlords may be able to use Commercial Rent Arrears Recovery (CRAR), pursue legal action, or take other enforcement measures to recover outstanding rent.
How does insurance work?
Residential property
Landlords typically arrange buildings insurance to cover the property itself, while tenants are responsible for insuring their own possessions through contents insurance.
Commercial property
Commercial landlords usually arrange the building insurance and recover the premium cost from the tenant through the lease.
However, this insurance generally only covers the building itself. Commercial tenants remain responsible for insuring their own stock, equipment, fixtures and other business assets.
What legislation affects property investors?
Residential property
The private rented sector is governed by a substantial body of legislation covering areas such as tenancy management, safety standards, energy efficiency and deposit protection.
In England, the Renters’ Rights Act 2025 introduced major reforms from 1 May 2026, including the abolition of Section 21 evictions and the move to periodic tenancies.
In Scotland, significant housing reforms continue to be implemented through the Housing (Scotland) Act 2025, with provisions being introduced between 2026 and 2028.
Commercial property
In England and Wales, the Landlord and Tenant Act 1954 remains one of the most important pieces of legislation governing commercial leases, giving many business tenants security of tenure and the right to request a lease renewal.
Commercial leases in Scotland are primarily governed by common law, while in Northern Ireland they are regulated under the Business Tenancies (Northern Ireland) Order 1996.
What are the advantages and disadvantages?
Residential property: the pros
- Generally easier for new investors to understand.
- Larger pool of potential tenants.
- Greater availability of properties.
- Can provide steady rental income and long-term capital growth.
Residential property: the cons
- More intensive management requirements.
- Landlords are typically responsible for repairs and maintenance.
- Tenant turnover can be higher.
- Increasing regulatory obligations.
Commercial property: the pros
- Potentially higher rental yields.
- Longer lease terms can provide greater income certainty.
- Tenants often take responsibility for maintenance and repairs.
- Opportunities to invest in offices, retail premises, industrial units and warehouses.
Commercial property: the cons
- Higher barriers to entry.
- Fewer potential tenants.
- Smaller supply of properties.
- Vacant periods can be longer.
- Income may be more sensitive to economic conditions and business performance.
Ultimately, the right choice depends on your investment goals, risk appetite and the level of involvement you want in managing your property portfolio.
Michael Sears, NAEA Commercial Propertymark Advisory Board Member, said:
“Residential and commercial property investment each offer distinct opportunities and challenges. Understanding the legal obligations, financial considerations, and risks associated with both sectors is essential before making an investment decision.
“Propertymark’s commercial training, events and specialist advice can help investors build their knowledge and make informed choices when entering the commercial property market.”
It’s important that landlords use professional agents when letting their property. With no mandatory regulation of the property sector, Propertymark member agents have chosen to be independently regulated and accountable to the highest standards. To find Propertymark member agents in your area, use our Find An Expert tool: www.propertymark.co.uk/find-an-expert
Nathan Emerson is chief executive of Propertymark
