Property investors are increasingly moving away from residential buy-to-let portfolios towards commercial property in response to mounting tax and regulatory pressures, according to trade body Propertymark.
The organisation reports that commercial agents are receiving more enquiries from residential landlords seeking to transition their investment strategies, driven by what they describe as a less restrictive legislative framework in the commercial sector.
Regulatory differences
Michael Sears, member of the NAEA Commercial Propertymark Advisory Panel, said: “Interest seems to be building from investors wanting to invest in commercial property over residential, mainly because there is less of a legislative stranglehold.”
He noted that investors making the switch are typically those converting existing residential portfolios, as the entry barrier to commercial property is generally higher, with lower loan-to-value lending typically available.
The shift comes as portfolio landlords navigate changing market conditions, with increasing tax, regulatory and compliance obligations affecting returns in the residential sector.
Investor guidance
Steve Lane, also a member of the advisory panel, said: “An interesting market trend is that we are seeing fresh investors seeking more in-depth advice where they are considering pivoting and perhaps investing in commercial property rather than residential property due to the changes in the private rental sector.”
Lane highlighted that many investors require guidance on the differences between tax and regulatory structures of the two markets, including borrowing ratios, tax liabilities, and regulatory obligations.
Commercial property presents its own challenges, including higher entry costs and more complex transactions compared to residential investment. However, the reduced regulatory burden appears to be outweighing these factors for a growing number of investors.
The trend reflects broader pressures on the residential buy-to-let sector, which has faced successive tax changes in recent years including restrictions on mortgage interest relief and higher stamp duty rates for additional properties. These changes have prompted some landlords to reassess their investment strategies across the property market.
