Commercial v Residential Property Investment: What’s The Difference?
Investing in property is a long established method of earning regular income and accumulating assets, but you can also accumulate problems. The property market can be a difficult arena and one where you only have limited control. One of the main factors you need to consider is whether you wish to invest in commercial or residential property.
By Jon Howe6/12/20

Investing in property is a long established method of earning regular income and accumulating assets, but you can also accumulate problems. The property market can be a difficult arena and one where you only have limited control. Investment of any kind carries an element of risk, but particularly so in property, and one of the main factors you need to consider is whether you wish to invest in commercial or residential property.
Property investment has always been at the mercy of external forces and especially at the moment. Unknown Brexit repercussions, several high street names in financial trouble and changes in tax treatment are all influencing the property market both in terms of residential and commercial property. Many traditional staples of the property market are also changing, with house prices falling in London where the market is saturated, while other areas of the UK are thriving, such as the burgeoning might of the Northern Powerhouse, which has traditionally been a much cheaper area to live.
The markets for commercial and residential property are very different and involve several unique considerations. It is rare to combine investment in both markets, but it can be done. However, they each involve a very different approach and ambitions, so a budding property investor will most likely make a choice at an early stage and follow a certain path, having carefully researched the landscape and the potential benefits and pitfalls of each.
Here, we will run through these considerations and establish what might be the best property market for you. After all, you are in property investment to maximise your returns, whatever your career aspirations or personal circumstances are. So understanding each market and what is involved is essential to which route you choose. So let us help you.
What is commercial property investment and what is residential property investment?
There are essentially three types of commercial property; retail, industrial and offices, although there are of course some that don’t fit into any of these categories. Commercial properties are usually run by professional management companies, and hence investment is more of a business deal with them, rather than a day-to-day involvement in a property.
New-build commercial properties are usually built in areas showing economic growth and demand, and so are very susceptible to the local economy and therefore investment appeal can fluctuate quite dramatically. The attraction of existing commercial properties is influenced by the same market forces, but of course, you are investing in an established area with more historical information upon which to base your judgement.
With residential property investment, you are buying properties to rent out, preparing contracts, finding tenants and making money from rental yield % and any equity you build whilst owning the property. In this respect, commercial and residential property bring similar types of rewards, but commercial lease contracts are typically much longer and more watertight, making them secure and reliable, but also harder to get out of if problems are encountered.
Residential property for investment usually involves mid-sized properties suitable for students, young professionals or young families. These can be older terraced houses with plenty of bedrooms or new-build flats or apartments, but they aren’t usually luxury properties of higher than average value. This means that the level of investment required to get into residential property will always be of a certain level. Commercial property investment can be of a comparable level, such as a single shop or a small hotel or bed & breakfast, but at the other end of the scale, commercial property investment could involve buying an office block, a small retail park or a complex of industrial units.
Essentially, the scope, flexibility and demands of each market are very different and you really need to assess the characteristics of each one to really understand the pros and cons and weigh up which is the right one for you.
What are the characteristics of commercial property investment?
We have talked already about the longer lease structure of commercial property, which perhaps offers more security, and the market is also open to a broader range of investors, simply because there is a greater variety of properties available. Therefore, it is perhaps easier to find a commercial property that suits your needs and offers the scope of ambition and growth that you want.
As you are dealing with professional management companies, commercial property investment is more of a business deal, and hence is less emotive than buying a house, possibly doing it up yourself and then finding tenants. With commercial property, you are likely to be paying management fees to acquire, refurbish and let the property and it becomes easier to spread these costs across a portfolio of properties, if and when you have built them up.
There are lots of finance options for buying a larger commercial property, such as:
- A standard mortgage
- Bridging finance
- Investment fund (direct or indirect)
- Collective investment scheme