Commercial property a safe bet?
3 February 2026(2026 Feb: LinkedIn). Property owes its reputation as a long-term hedge against inflation to its potential for rental and capital growth. But for commercial property it is, in my opinion, a reputation well past its shelf-life. A consequence of what is known as yield compression, the attraction of commercial property as a safe bet has become distorted by amateur investors pouring millions of pounds into the market for the wrong reason.
The commercial property market comprises sectors – shops, offices, industrial – each sector having segments into which more specialised property categories fall. Specialised property is generally harder to value because there is less demand and rental evidence more difficult to find. As a rule, property that is harder to value will normally command a higher investment yield to allow for the greater risk.
In the popular sectors, rack-rented investment yields are relatively low compared to the more specialist segments.
Apart from institutional investors, there are two types of investor: professional and amateur. Amateurs have one thing in common: they do not understand why, when Base Rate and the cost of borrowing is the same regardless of location, it makes sense for high yields to exist just because of the valuation difficulty. What makes more sense is that a high yield is an attractive investment. The appeal is so strong that the lure outweighs almost any other consideration particularly those of property fundamentals whose criteria for a professional investor is more important than yield.
Amateurs are not merely armchair investors, one or a few properties to their name. Many amateurs have substantial portfolios whose book value runs to tens of millions of £. Because of that, they see themselves as professional investors, but provided the rental income exceeds the cost of their borrowings, that’s all that matters.
Ever since auction overtook private treaty to become the number 1 means for buying and selling commercial property investment, professional investors have had and continue to have a field day. The inexperience among amateurs buying at auction enables professionals to capitalise. Property with little or no hope of rental and capital growth is packaged attractively to lull inexperience into a false sense of security.
By widening the range of commercial property for sale by auction to include specialist segments, it has enabled the specialist segments to be sold for much than they would fetch otherwise to people whose investment performance is entirely dependent upon finding another inexperienced buyer to pay more and at rent review and lease renewal a surveyor with enough knowledge of the type of property to act for them.
As for finding a surveyor, the difficulty is that as specialist sectors are relatively small markets surveyors with the know-how act for the tenants.
Top of the list of specialist sectors is the public house; pubs. Among the esoteric are airport landing lights – as I discovered when acting for a landlord and all but one of the firms I contacted act for airport operators. Also when acting for the landlord of a garden centre, one of the few surveyors with know-how refused to help me because as he said I shouldn’t have taken on the instructions if I didn’t know how to do the review. Subsequently I found he had contributed a chapter in a book about valuation in which he explained in detail how to value the rent of garden centres. I have also rent valued a football ground, a rifle range, squash courts. I’ve done a few pub reviews: i am acting for a landlord currently. Nightclubs too. I declined acting for the landlord of a casino because I’ve never done a review of a casino and from little I know evidence would be thin.
The convenience store market comprises multiple operators, none of whom pay a penny more despite being in the minority circa 7% of tenants, and the independents. But the multiples only get away with nil increase because landlords surveyors fall for m/o negotiating tactics.
I’ve masses of experience of geared and ground rent reviews. And as for banks,,,,
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