Close Menu
Invest Intellect
    Facebook X (Twitter) Instagram
    Invest Intellect
    Facebook X (Twitter) Instagram Pinterest
    • Home
    • Commodities
    • Cryptocurrency
    • Fintech
    • Investments
    • Precious Metal
    • Property
    • Stock Market
    Invest Intellect
    Home»Property»Commercial property investment explained – Which?
    Property

    Commercial property investment explained – Which?

    April 5, 20256 Mins Read


    Why invest in commercial property?

    Commercial property is an asset class to consider as a way of spreading, or diversifying, risk in your investment portfolio.

    You can earn money from a commercial property investment through income from renting to a tenant or capital growth from an increase in the value of the property.

    Generally, property isn’t highly correlated to other assets classes such as cash, fixed income (bonds and gilts) and equities, meaning that property values move independently of other assets and aren’t typically affected by what’s going on in the stock markets.

    If you’re looking for information about residential property investing, you can read our guides on buy-to-let mortgages and more.

    This newsletter delivers free money-related content, along with other information about Which? Group products and services. Unsubscribe whenever you want. Your data will be processed in accordance with our Privacy policy

    How to invest in 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

    There are a number of different ways to get exposure to these types of property as an investment.

    For private investors, direct investment in property means literally buying all of, or a share in, a property. For most people, this is not a practical way of getting exposure to the commercial property market.

    Otherwise, you could invest in either direct or indirect property funds.

    Investing in commercial property funds

    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: Investment funds explained 

    What are direct or ‘bricks-and-mortar’ commercial property funds?

    Bricks-and-mortar funds refer to direct commercial property investment, meaning that actual physical properties are bought by the fund. 

    Risk is spread across a number of different properties and, therefore, if one property is not occupied (and therefore earning no income from rent), others within the fund can generate income. Your returns come from a combination of increased value of the properties in the fund and the rental income.

    Rental income provides you with an annual return and, when you cash in your investment, you’ll hopefully receive the sum you initially invested, plus any growth in value of the properties within the fund. Though the value could also have decreased from your initial investment.

    Pros:

    • Long lease lengths (typically five years or more), less risk of default than residential properties, and upward-only rent reviews, mean that rental income increases by at least inflation each year
    • You don’t have the hassle of finding locations, negotiation of property management, which falls to the manager of your fund

    Cons:

    • Unoccupied buildings still cost money to manage
    • Property markets are highly illiquid compared with most other financial markets, meaning that buying or selling property can take months, and can make it difficult to sell your holding in the fund quickly

    Warning

    Beware the freezing of direct commercial property investment funds

    In recent years a large number of direct property fund investors found they could not take their money out as property values plunged.

    This was because property funds have a little-known clause that allows fund managers to shut off payments to investors wanting to exit the funds if there are ‘exceptional circumstances’.

    Under Financial Conduct Authority rules, property funds can suspend trading for 28 days while they try to raise enough cash by selling properties to meet the repayments of investors looking to reclaim their cash.

    Long-term asset funds (LTAFs)

    Long-term asset funds are a recently authorised open-ended investment fund aimed at getting more individual investors into less liquid private markets – including commercial property. LTAFs can be included within within innovative finance Isas (Ifisas). 

    What are indirect commercial property funds?

    These funds, usually in the form of unit trusts and Oeics, buy shares in companies that invest in property. 

    These shares are listed on the stock exchange and traded on a daily basis; therefore, they don’t have the liquidity problems of direct commercial property funds, meaning you can move in and out of the fund freely.

    Returns are gained like any other investment in shares, through share-price appreciation and dividend income, rather than directly through property price increases and rental income. 

    But while you get the benefit of the liquidity of an equity-like product, you also get the volatility of investing on the stock market.

    Real estate investment trusts

    The great majority (over 80%) of these property companies are known as Real Estate Investment Trusts (REITs) and have greater tax benefits than other listed property companies.

    REIT companies don’t pay corporation tax on their assets on the condition that 90% of profits are paid to shareholders as dividends, which, in turn, could mean higher payouts. REIT investors pay either 20% or 40% tax, because they’re classed as property-letting income.

    Property investment trusts

    Alternatively, you could invest in property investment trusts, which will pool your money to buy property and property company shares.

    The difference between these and REITs is that they’re considered to be like any other company, so tax on dividends for the 2025-26 tax year is 8.75% for basic-rate taxpayers on any dividends over £500. This increases to 33.75% and 39.35% for higher and additional rate taxpayers respectively.

    Investment trusts can do things that unit trusts and OEICs can’t. For example, many property investment trusts use gearing – a process whereby the companies borrow money – to boost the amount they can put into property beyond what you have invested.

    While this can enhance gains in a rising market, it can magnify losses if returns fall.

    • Find out more: Investment trusts explained 



    Source link

    Share. Facebook Twitter Pinterest LinkedIn Tumblr Email

    Related Posts

    UK family home for sale for £1 and it’s not far from the city centre or beautiful beaches

    Property

    Primaris Real Estate Investment Trust : National Bank conserve son opinion neutre

    Property

    Climate change and property – solicitors’ questions answered

    Property

    Heiwa Real Estate REIT émet de nouvelles parts par attribution à un tiers pour financer des acquisitions d’actifs

    Property

    Sime Darby Property et SD Guthrie signent un accord de coentreprise pour développer jusqu’à 2 000 acres à Carey Island

    Property

    Les actionnaires liés à Murakami portent leur participation conjointe dans Heiwa Real Estate Co à 10,39 %

    Property
    Leave A Reply Cancel Reply

    Top Picks
    Stock Market

    Stock market today: Wall Street wavers in mixed trading, but remains on track for weekly losses | News, Sports, Jobs

    Investments

    Türkiye’s electric motor manufacturers increasing technological capabilities with new investments

    Precious Metal

    XAU/USD drifts lower below $2,900 amid profit-taking

    Editors Picks

    Fidelity: Gold Passing Baton à Bitcoin

    May 17, 2025

    Commodities for Thursday, August 22, 2024 – BNN Bloomberg

    August 22, 2024

    Next Cryptocurrency to Explode, 20 January — Near Protocol, Hedera, EigenLayer, Compound

    January 20, 2025

    Laurent Leksell et membre du conseil d’administration de Bio-Works augmentent leurs participations

    May 26, 2025
    What's Hot

    Trump’s Crypto Reversal: Ex-President Reportedly Holds More Than $1M In Digital Assets

    August 17, 2024

    Free Article Limit Reached – MINING.COM

    May 21, 2025

    Self-made billionaire Jenny Just on growing a fintech empire, getting comfortable with failure and making way for other women

    August 28, 2024
    Our Picks

    Top 3 SGX Dividend Stocks To Consider In August 2024

    August 14, 2024

    Here are some simple ways to cool down your energy costs

    August 13, 2024

    XRP usage expands as Guggenheim Treasury issues Digital Commercial Paper on the XRP Ledger

    June 11, 2025
    Weekly Top

    Rencontre avec Tabahi, seul groupe de thrash metal du Pakistan

    June 20, 2025

    Tout comprendre à la nouvelle étiquette énergie des smartphones

    June 20, 2025

    Silver Viper finalise l’acquisition du projet aurifère-cuivrique Cimarron

    June 20, 2025
    Editor's Pick

    ED files PC against NBFCs, fintech companies in Hyderabad; POC worth Rs. 434 Cr frozen

    August 24, 2024

    Kuwait Bans Cryptocurrency Mining As Part Of Power Crisis Crackdown

    May 4, 2025

    Passage of GO Bond 3 would provide $1 million to UNM-Los Alamos: UNM Newsroom

    October 28, 2024
    © 2025 Invest Intellect
    • Contact us
    • Privacy Policy
    • Terms and Conditions

    Type above and press Enter to search. Press Esc to cancel.