Commercial property investment Investing in commercial property
Many property investors prefer the familiarity of investing directly in residential property, but commercial property can offer a simpler and lower cost alternative.
Commercial properties cost millions of pounds to purchase or build, and can command huge rental incomes, but in most cases, they're impossible for smaller investors to buy outright. Therefore, most invest in commercial property through investment funds, like unit trusts, Oeics or investment trusts. You can find out more about these products in our different types of investment guide.
These funds either directly own properties and pay you returns based on their growth in value and rental income, or buy shares in property related companies, paying you returns based on the growth in the value of the shares and the payment of dividends.
You usually only need around £500 to invest a lump sum in a property fund, or £50 per month for regular savings.
Find out more: Commercial property funds – our guide to different commercial property investment products
What are the different types of commercial property?
There are three categories of commercial property:
- Retail property – including shopping centres, supermarkets, retail warehouses and high street shops
- Office property – purpose-built for businesses, these often require installation of high speed internet and other services essential to businesses
- Industrial property – such as industrial estates and warehouses
Why is commercial property a good investment?
The UK benefits greatly from a longer lease structure compared with Europe and the US. Typical lease length in a London office is generally between 10 and 15 years, while the average lease length across all of the UK is approximately eight years.
This is much longer than what you would get from a residential property, which generally has leases of six months to a year.
This structure potentially offers more security relative to the returns offered by shares, as income is guaranteed at a set level for an extended period of time.
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