Commercial property investment - what's not to like?

A move to commercial property

Many landlords are reassessing residential portfolios due to the recent Renters' Rights Act 2026 resulting in tighter regulations. By contrast, commercial leases are largely a matter of contract between sophisticated parties. This creates scope for longer terms, clearer risk allocation, better cost recovery and more predictable income streams.

In commercial property investment, you choose the asset class and covenant profile that suit your strategy. Typical options include industrial and logistics, retail, offices and alternatives such as healthcare. There is more scope for a landlord to better research tenant financial covenant strength as well as opportunity to check referees.

Why it matters:

• Longer contractual terms and income visibility. Commercial leases commonly run for longer terms with the current market standard between 5 to 15 years. Leases can, and often do, include break options but these can be negotiated to a fixed date providing some certainty for a landlord. This predictability in term length means a reduction in occupancy churn and void periods compared to the private rental market permitting better income stream visibility.
• Better tenant continuity. Tenants are usually businesses that invest in fit out, branding, marketing to customers or continuity for staff. This is an incentive for tenants to stay and pay.
• Contractual flexibility. A landlord may negotiate rent review mechanisms and tailor repairing obligations depending on the type of tenant and property. Please note the changes in law that are upcoming regarding rent reviews - see here for VWV's article on those changes. 
• Costs recovery: Full repairing and insuring provisions are common, with service charges and insurance rents paid for by a tenant in multi-let buildings. Depending on circumstances this can also include sharing, if not passing, the responsibility for environmental improvement costs to a tenant.
• Less regulatory obligations: compared to residential, commercial property landlords are not legally required to deal with deposit schemes. Depending on the property type and negotiations other obligations commercial property landlords may not be required to deal with include internal repairs, fire risk assessments, asbestos assessments, health and safety files.

Key risks and implications

• A landlord should consider sector choice and location. Demand and resilience vary across sectors and regions. For example, well located industrial sheds may offer strong tenant demand and simple management. Secondary offices may require more capital expenditure to stay competitive when there are some markets demanding, and paying the premium, for Grade A office spaces.
• Covenant strength. Albeit landlords can carry out due diligence on their tenant, a tenant's financial covenant strength is important as a lease may terminate on insolvency with the landlord potentially picking up the costs of making the property tenantable on re-letting. Review accounts, parent guarantees, rent deposits and the business model. Consider diversification in your property portfolio to manage exposure and weather the inevitable market storms.
• Energy efficiency and sustainability is a hot topic. There have been long standing rumbles of the minimum energy efficiency rating being increased before a property can be legally let. In any event, environmental efficiency upgrades are often attractive to incoming tenants who are willing to pay a premium to save on running costs, staff satisfaction and to help meet their environmental, social and governmental objectives.
• Dilapidations and end of term. Commercial tenants typically reinstate alterations and repair the property at the end of a lease with a potential damages claim if they do not. Clear lease provisions help manage outcomes, reduce disputes and assist with earlier re-lettings.
• Commercial units can take longer to re-let than residential. Landlords should factor in business rates during voids, interim security and marketing costs.
• Tax. As part of considering a commercial property investment, a landlord should consider SDLT, VAT options to tax, capital allowances and how to structure ownership. Early input from your tax adviser and solicitor can improve revenue returns and avoid pitfalls.

Can we help you?

If you are considering a move into commercial property or reshaping your portfolio, we can guide you through and assist with sector selection, heads of terms, due diligence and lease negotiation to align the asset with your strategy. 

This article is for general information only and is not legal advice. Specific transactions turn on their facts and the law can change. Please contact us for advice tailored to your circumstances.

For a focused discussion on your objectives and risk profile, please get in touch with Harriet Lander, Senior Associate in our Real Estate team.