Commercial property
Commercial property — shops, offices, mixed-use buildings — works on different rules to residential. You don't need to be an expert to start, but you do need to understand that the income, not the bricks, usually sets the value.
What to understand first
- Buying commercial investments (a tenant already paying rent)
- Tenant strength — who's paying, and how reliable are they?
- Lease length — how long is the income secured for?
- Passing rent — what's actually being paid now
- Yield — how the rent translates into a value
- Vacant possession risk — what happens if the tenant leaves
- Refurbishment risk on older stock
- Mixed-use property (e.g. a shop with a flat above)
- Commercial-to-residential conversion opportunities
Why valuation method matters
Commercial property is usually valued on its income: the net rent divided by a yield. A strong tenant on a long lease means a lower yield and a higher value; a weak or short lease pushes the yield up and the value down. That's a very different world from comparing a house to the one that sold down the road.
Mixed-use is a common entry point: the commercial part is valued on income, the flats on comparable sales, and the whole purchase is usually taxed at the cheaper non-residential stamp duty rates.
See how income and yield drive a commercial or mixed-use value.
Commercial calculatorKey takeaways
- Commercial value is driven by income, tenant strength and lease length.
- A stronger covenant and longer lease mean a lower yield and higher value.
- Mixed-use blends income and bricks valuation — and gets cheaper SDLT.
Want to check whether a real deal is financeable? Shape it, then send it over for a sense-check.
Open the Deal ShaperModule exam
Answer all 4 questions. You need 75% to pass and complete the module — anything you miss points you back to the right section.
1. Commercial property is usually valued on:
2. A strong tenant on a long lease tends to mean:
3. Vacant possession risk refers to:
4. Mixed-use property typically: