Should You Invest in Residential or Commercial Property in the UK as a Foreign Investor? - 24/01/2025

Why Choose Residential Property?

An ongoing housing deficit in the UK has fed a healthy demand for residential property in major cities like Manchester, Liverpool and Birmingham. In these regions, you can find a rental yield between around 4 and 6% depending on the postcode and area you are exploring.

As a foreign investor, the residential option can appear as a safer, lower risk entry point, as it requires less of a specialised toolset compared to the commercial side – making it a more enticing option for first-timers. Additionally, university cities such as Leeds or Manchester offer a consistent rental demand for students and young professionals.

However, investors must navigate increasing regulations. Recent government policies, including the requirement for properties to achieve an EPC rating of C or above by 2028, mean additional costs for retrofitting and compliance. Furthermore, a 2% stamp duty surcharge for non-resident buyers raises upfront costs. Despite these challenges, residential property remains a reliable choice for long-term growth.

You may also want to take heed of the increased regulations in the UK – as recent updated policy requires properties to achieve an EPC rating of C or higher by 2028. This might rack up extra costs for compliance and retrofitting. On top of this, a 2% stamp duty surcharge for non-domestic buyers will increase your upfront costs. Despite these drawbacks, however, residential property remains one of the most stable and dependable avenues for long-term growth.

Why Consider Commercial Property?

Commercial properties, including offices, retail spaces, and warehouses, often deliver higher rental yields, typically ranging from 6-10% annually. Tenancy agreements are longer, often spanning 5-20 years, providing stability and reduced tenant turnover compared to residential investments. Commercial tenants often also assume responsibility for property maintenance, lowering your ongoing management costs.

Cities like London and Manchester are hotspots for commercial investment. London’s premium office spaces continue to attract international corporations, while Manchester’s thriving tech and logistics sectors offer significant growth potential. The demand for logistics hubs is particularly strong, fuelled by the rise of e-commerce.

That said, commercial property investments require a deeper understanding of market trends and tenant needs. Economic volatility can also affect demand, especially in sectors like retail and traditional offices, where post-pandemic shifts have reshaped usage patterns. High upfront costs and more complex regulations are additional considerations.

So…?

For foreign investors seeking stable returns and lower risk, residential property offers a straightforward and reliable option. On the other hand, those looking for higher yields and longer-term growth potential might find commercial property—particularly in sectors like logistics or tech hubs—more appealing.

Engage professional advisors, research the market thoroughly, and consider your long-term objectives to make an informed decision. The UK remains a global property hotspot, offering opportunities to suit a variety of investor profiles.