Why are investors leaving buy-to-let for commercial property?
The figures show that more and more traditional buy-to-let landlords are considering a diversifying strategy of investing in commercial property.
Opinion By Tom Entwistle, Founder, LandlordZONE
Is there a structural change underway in small-scale property investment, or is this just a temporary blip as the market settles down after the shocks of stricter tax and regulatory controls.
For most of my working life, residential buy-to-let was the go-to entry point for anyone with a modest amount of capital to invest in property. It was accessible, with suitable properties everywhere, well understood, good tenant demand and backed by a large pool of lenders competing for your business.
Commercial property was a much more specialist occupation. It was something small-scale landlords rarely graduated to once they had enough experience. They had to have gained sufficient confidence to venture into the commercial world.
Commercial property investing has a steeper learning curve than residential. Financing is usually trickier, and without a successful track record your chances of security loans are diminished. Property values are generally higher and despite its many advantages it also potentially carries greater risk.
Disclaimer:
This article is provided for general information purposes only and does not constitute legal, financial or investment advice. Landlords considering a change in investment strategy should seek independent professional advice tailored to their individual circumstances.
A change of tack
The small-scale landlord, even those with one or two-properties or the proverbial accidental portfolio builder, perhaps with half a dozen lets, is now seen dipping a toe into this new-to-them market.
According to Propertymark’s NAEA Commercial Advisory Panel, alongside PropertyMark’s commercial property management resources, their reporting on market conditions through the first half of 2026 identifies a growing number of investors exploring commercial property investment in preference to residential.
Their report identifies increasing tax, regulatory and compliance obligations affecting residential landlords as the main reasons for a re-think. Some landlords are reassessing their investment strategies altogether.
Commercial property assets they see as a diversifying move away from pure residential and its increasingly restrictive legislative framework, perhaps towards a blended portfolio approach: residential and business to business commercial letting.
PropertyMark reports on enquiries reaching its commercial agent members, it’s not a definitive account of capital inflows but it is backed by other data pointing towards the same conclusion – there is definitely more interest in commercial property.
The investment dilemma
As everyone knows, buy-to-let landlords have been selling up, quitting the market in quite large numbers or at least selling down their portfolios. One report says that almost 100,000 buy-to-let landlords left in the last year, albeit sales are sometimes snapped up by committed portfolio landlords.
The problem for the quitters is, and this is the dilemma small-scale landlords face, after paying a chunk of capital gains tax, what do they do with perhaps a few hundred thousand pounds sitting in the bank?
The stock market is a scary place for the inexperienced. Cash investments generally offer poor returns after tax and the bond market is a mystery to most, so where better to be than in understandable bricks and mortar? In fact it seems there are plenty of landlords who now regret selling.
What are the agents seeing?
Michael Sears, a member of the NAEA Commercial Advisory Panel, sees the shift in strategy for some as down to one thing, regulatory fatigue among existing residential landlords.
“Interest seems to be building from investors wanting to invest in commercial property over residential, mainly because there is less of a legislative stranglehold.”
The evidence they are seeing is that the switch involves typically converting existing residential portfolio landlords rather than newcomers becoming commercial investors.
Commercials generally having a higher entry point and lower loan-to-value lending, along with the need to have experience, tend to rule out first-time buyers. Having a large chunk of existing equity in a residential portfolio can ease the way for the small-scale landlord into commercial investing, refubs. and development.
Healthy demand
Sears reports that the retail property sector – the natural entry point for small-scale landlords – in Kent, continues to perform strongly. Demand for available stock has even been outstripping supply in some locations, with shop units letting or selling within relatively short timescales.
Industrial and warehousing space in the South-east remains similarly buoyant, with tenants matched to property very quickly. The picture, it seems, is more mixed at the top end of the office market with large open-plan space continuing to struggle. However, smaller offices in business centres are holding up well.
The NAEA Commercial Advisory Panel describes what he terms “an interesting market trend” with new investors seeking detailed advice when they consider moving into commercial property.
Wider data telling a similar story
Handelsbanken’s 2025 property investment survey, which I covered on LandlordZONE last year, found that 46 per cent of investors were expecting significant growth in demand for commercial assets against just 17 per cent for residential.
This is the language the bank itself described as a “historic shift in investor preference” with its findings directly tied to the then-forthcoming Renters’ Rights Bill, EPC reforms and the broader concerns about the direction of residential regulations.
A word of caution on this bandwagon
It would be remiss of me not to mention the activity going on in the property training industry. Several higher-profile property “gurus” and course providers have added commercial-focused sales products to their line-ups over the past year or so.
These outfits are marketing commercial property investment courses for straight investments, conversions, commercial-to-residential strategies and portfolio diversification, aimed at newbies and at residential landlords looking for a way out of buy-to-let.
Some of this content is genuinely useful as commercial property demands a quite different skill set, so a structured approach to learning has a place, but some of these organisations constantly up-sell more courses and services that the unwary can fall foul of.
I always maintain that you can learn as much from a few inexpensive books from Amazon, those written by genuine practitioners, as you will paying thousands out for a hand-holding course. I never attended a course, but I always did a lot of private study. It’s simply a matter of having confidence in yourself and putting in the effort to research the market thoroughly.
Small-scale landlords should approach these courses with a healthy dose of scepticism. A shift in investor sentiment, as evidenced by the trade bodies and their transaction volumes, is a different matter from a marketing spiel doled out on these expensive courses.
Anyone tempted to switch sectors on the strength of a course promising fast returns would do well to seek independent advice from experienced property agents locally, ideally a commercial chartered surveyor and a property specialist solicitor first.
Commercial property is no free lunch
It would be a mistake to see commercial property as a panacea, the answer to all your prayers. I spent over 30 years investing in and managing commercial property, shops, offices and trades workshops.
Before diving in you should beware, it’s not a total refuge from regulations and EPC requirements. But being business to business it is easier to manage if you are blessed with bad tenants.
Commercial comes with its own well-known drawbacks. For a start investment values may be higher but not necessarily so. What is higher is the risk of longer void periods and these are periods when the landlord carries all the costs: insurance, business rates, utilities charges and security arrangements when the property is empty – business rates alone can cost as much as the rental value.
If you own a single unit, you need the resources to withstand a lengthy void period because, unless you are lucky, most commercial lets take far longer than residential ones.
You need to be aware of the rules surrounding the Landlord and Tenant Act 1954, which gives business tenants statutory rights to renew their leases. This of course works two ways, having the security of income from a tied-in tenant offsets the inconvenience of being unable to get the property back when you want it.
And the policy makers never leave things as they are for long. The English Devolution and Community Empowerment Act 2026 will now ban upward-only rent reviews in new business leases, once secondary legislation brings the provision into force. However, the latest EPC guidance has relaxed the rules for smaller commercial units until after 2030.
What this means in practice
For the small-scale landlord looking to diversify the sensible approach is a gradual rather than a wholesale move. A risk reduction strategy, I would always advocate, is semi-commercial or mixed use, flats over shops or offices.
The flat will almost always be let very quickly and the income from it will usually cover the cost of the shop / office being vacant. Once you get yourself a good commercial tenant or tenants, you’re away to the races – two lots of income or more coming in and a long-term commercial tenant, ideally on a full repairing and insuring (FRI) lease.
Some points to watch:
Commercial mortgages are assessed very differently to buy-to-let, typically with lower loan-to-value ratios, higher interest rates and generally more conservative lending criteria. Lenders are looking for a successful track record.
Insurance and void costs fall more heavily on the landlord when a unit is empty, including business rates liability, so you need the resources to see it through. If you have a portfolio the risk is spread, but owning a single unit means your risk is increased.
Finding a good tenant can take considerably longer than in residential lettings, with rent-free periods or incentives to come on board very common.
Agents may be receiving more enquiries, but this does not mean they are seeing more commercial property completions and letting, though the evidence does point that way.
Always get independent professional advice from a commercial surveyor and solicitor before making a move.
It almost goes without saying that investing within a limited company is the way to go, but get expert financial and tax advice.
Legal jurisdictions
This article addresses the position in England. The Renters’ Rights Act 2025 and the Landlord and Tenant Act 1954 apply in England (the latter also in Wales). Scotland and Wales have separate legislative frameworks for residential tenancies under the Housing (Scotland) Act 2025 and the Renting Homes (Wales) Act 2016 respectively.
Reference sources:
Propertymark, “Fewer tax and regulatory strangleholds – why interest in commercial over residential property investment is growing,” 8 July 2026 propertymark.co.uk
See also
Handelsbanken, 2025 Property Investment Report (via LandlordZONE, June 2025) – landlordzone.co.uk
LandlordZONE, “Semi-commercial and HMO properties drive landlord investment,” November 2025 – landlordzon.co.uk
