Former buy-to-let (BTL) landlords looking for more adventurous and higher-yielding investments are turning to commercial and semi-commercial property investment.
While more complex, requiring the advice of specialist brokers to structure deals to suit risk and yield appetites, those complexities serve to keep ‘run-of-the-mill’ investors out of the commercial market, pushing the price of properties down by as much as 15% in the last four years.
Analysis by lender Together of HMRC data shows an 18% increase in the volume of commercial and mixed-use or semi-commercial property purchases from 95,660 to 113,750 between 2022 and 2025.
Together’s own data shows that the number of semi-commercial and commercial mortgages written increased by 9.8% over the same period – from 1,538 to 1,690.
Why landlords are turning to mixed-use property
Mark Eastwood, director of corporate sales at Together, says: “We’ve seen tax and regulations changes, including the increase in stamp duty for second homes and the Renters’ Rights Act, shake up the business landscape for ‘traditional’ BTL investors.”
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Some landlords are looking to commercial and semi-commercial properties as a way of diversifying their portfolios and providing a greater layer of protection if one sector – such as retail, offices, hospitality or industrial – experiences a downturn, says Eastwood.
“Others we’ve seen buying commercial properties and converting all or part into houses of multiple occupation (HMOs) to maximise yields,” he adds.
Ranging from flats above shops or restaurants to homes converted to care facilities, the possibilities are far-reaching.
Hiten Ganatra, Visonary Finance’s managing director, set up Mortimer Street Capital – a brokerage focused on semi- and commercial property investment – two years ago to cater for the growing demand from his BTL clients looking to diversify their portfolios.
Over that time, he’s seen his BTL clients move to acquire portfolios of properties through probate sales, acquire blocks of multi-unit freehold blocks (MUFBs) and strike up contracts with housing providers such as Serco and Clearsprings, who provide short-term accommodation to asylum seekers and those in need of emergency shelter.
Ganatra says: “We’ve got a large landlord of ours who is considering going into converting houses into C2 use for childcare provision, which means they will [need] to get an Ofsted rating on the property so that they can house vulnerable children.
“This is a large landlord that started off just acquiring standard BTL properties and renting them out to families. Then slowly they moved into HMOs, then gradually into corporate-type tenancies working with companies like Serco.
“Now they’re looking at providing care in these houses, or, working with government contracts, diversifying their income. We help those landlords structure the right finance package so that numbers work.”
Aside from the regulatory and tax pressures that BTL landlords must deal with, the risk of having just one tenant in a property became apparent for many landlords during the pandemic, when families’ finances were under pressure.
This increased the possibility that they may not be able to pay their rent. Those risks have not gone away, says Kunal Mehta, managing director of bridging finance lender SDKA.
“At the moment, we have unemployment on the rise and the economy is under strain.
“Investors are looking at this situation and thinking: ‘Well, if I’ve got one asset with one rental income and that tenant doesn’t get paid, I’ve got a problem’,” he adds.
Benefits of semi-commercial properties
Semi-commercial properties allow landlords to make two independent incomes from the same property space – one from the residential tenant and one from the commercial – a sound strategy for mitigating against void periods.
Although the Renters’ Rights Act will apply to the residential element of the property, it will not apply to the commercial premises. Some investors ask for personal guarantees from the directors of the firm occupying the typically ground-floor space, or corporate guarantees if the firm has a parent company.
Landlords can also go one step further in an attempt to lower the risk of financial detriment by putting in place a Full Repair and Insurance (FRI) lease, which, as it says, places the responsibility of repairing any damage and paying for insurance on the commercial tenant.
But, if a property is one of many available premises to let, having this type of lease in place could make the property less attractive.
Stamp duty is considerably lower on semi- and commercial properties compared to the bill landlords face when purchasing a BTL.
For example, the stamp duty bill on a standard BTL with a price tag of £400,000 would be £30,000, compared to £9,500 if there is a part or full commercial element to the property.
The complexities putting landlords off
But not all landlords who have had enough of the BTL market are piling into commercial, says Mehta.
Loan to values (LTVs) are lower, the cost of borrowing is higher, leases can be more complex and there are different sets of regulations to contend with – for example, a fire risk assessment is needed for communal areas. When you add all these factors together, for some investors, all they equal is a headache.
“These added complexities tend to knock out run-of-the-mill investors,” says Mehta.
He’s seen property values decline by 10-15% since late 2022, with the bulk of the correction happening between Q3 2022 and Q3 2025.
“With less investors chasing property deals in the semi- and commercial property markets than in the residential mass market, and with a higher yield needed from the rent because the cost of borrowing is higher, the price they are willing to pay for asset[s] is lower,” he adds.
But complexities are what make commercial deals interesting, says Ganatra, and they offer brokers the opportunity to add real value to the service they give to their clients.
“You come into the office and you don’t know what issues are going to arise, what deals you’ll get on the table. You don’t need to have the answer to the problem immediately, but you do need the experience to navigate certain challenges and structures and look for ways to de-risk the deal for the client,” he says.