
Diversification among commercial property landlords in 2024: Will the trend continue?
Newsletter sign-up
Sign up to our newsletter to receive updates on our latest news for lenders, landlords, occupiers and developers.
The commercial property landscape in the UK has seen significant shifts during 2024, with professional landlords increasingly diversifying their portfolios to adapt to a challenging market. Recent data from Shawbrook highlights a notable rise in applications for higher-yielding property types, such as semi-commercial and commercial properties, reflecting a strategic pivot among landlords seeking resilience and growth opportunities. As the sector moves into 2025, questions arise about whether this trend is sustainable.
A surge in diversification
Data from 2024 reveals that applications for semi-commercial property purchases rose by 31% year-on-year, while commercial property purchases increased by 28%. These figures suggest a clear appetite among landlords for higher-yielding investments, as traditional residential buy-to-let properties face growing challenges, including regulatory pressures and rising costs. Semi-commercial properties, which combine residential and commercial elements, and pure commercial assets, offer attractive returns and potential tax efficiencies, making them increasingly appealing to professional investors.
This trend highlights a shift in mindset among landlords, who are actively seeking to balance their portfolios with assets that offer stronger yields. It also underscores their ability to adapt to evolving market conditions by exploring asset classes beyond traditional residential properties.
Strategic adaptation to market challenges
The trends observed in 2024 indicate that professional landlords are increasingly adopting a calculated approach to navigating a challenging market. The shift towards mixed use commercial properties is not merely reactive but part of a strategic effort to align portfolios with changing market conditions. This approach reflects the recognition that higher-yielding opportunities can help offset some of the pressures faced by traditional residential investments, such as tighter regulation and rising operational costs.
By diversifying into these property types, landlords aim to build more robust and future-proof portfolios with more flexibility. Mixed use commercial properties offer benefits such as longer lease terms, stable income streams, and the potential for higher yields, making them a logical choice for those seeking to mitigate risks and enhance profitability.
Debt management
Alongside this diversification, refinancing trends indicate a more cautious approach to managing existing portfolios. Applications for refinancing without additional capital raising increased in 2024, while refinancing with capital raise applications declined. This pattern suggests that landlords are focusing on debt management in response to high interest rates. Many are opting for fixed-rate product transfers to secure stability and optimise their current holdings rather than pursuing aggressive growth strategies.
This cautious approach indicates a broader shift towards financial prudence within the professional landlord community to secure ongoing resilience. Landlords are carefully balancing the need to stabilise their portfolios while exploring new avenues for growth, ensuring they remain competitive in a challenging economic environment.
Looking ahead to 2025
As the UK enters 2025, the question remains whether the trend for diversification will persist. Several factors suggest it will. The appeal of higher-yielding property types is unlikely to diminish, particularly as landlords continue to seek ways to offset the pressures of rising interest rates and regulatory changes. Furthermore, commercial properties, with their longer lease terms and potentially more stable income streams, provide an attractive alternative to residential investments.
However, potential headwinds could temper this trend. Economic uncertainty shifts in demand for commercial spaces, and potential changes in interest rates may influence landlords’ investment decisions. Continued adaptability and a focus on identifying opportunities within a fluctuating market will be crucial for sustaining diversification strategies and maintaining a robust portfolio. A balance portfolio will enable landlords to be more flexible and able to navigate a challenging market.