Benham and Reeves: Commercial market offers better yields than residential
Market analysis by London lettings and estate agent Benham and Reeves found that, while the initial cost of investing is higher, the commercial market offers average yields of 10.7% compared to resi’s 3.7%.
When it comes to the initial cost of investing, the average residential property requires a budget of £259,850.
With an average value of £454,384, a commercial investment will require a budget some 75% larger.
The residential market offers up greater choice, with 541,966 listings versus 12,022 across the commercial space.
The residential market is worth an estimated £251.5bn, while the commercial market comes in at almost £9bn in value.
London and the South East rank top for residential stock availability, accounting for 19% of all listings, with the East of England (12%) also seeing a large number.
Those looking for a commercial investment are better placed investing in the South West and North West, accounting for 12.9% and 12% of all commercial stock respectively.
London ranks third with 11% of all commercial properties in the capital.
Currently, Scotland and the North West offer the highest residential yields at 4.4% and 4.3%, while Scotland is also home to the highest commercial yield at 20.4%, along with the South West (13.7%).
Marc von Grundherr, director of Benham and Reeves, said: “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.
“But tough times can also bring great opportunity and with the country now reopening from both a professional and social standpoint, both sectors are set to see a return to health over the coming months.
“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.”