What is a Good ROI on Commercial Property? Realistic Yields & Insider Tips for 2025

If you’re looking at commercial property in London—or any big UK city, really—the figures being thrown around can get dizzying. You’ll see agents touting tempting returns, developers painting perfect pictures, and news headlines warning of a rollercoaster market. So, what’s actually a good ROI on commercial property these days? It isn’t some number plucked out of thin air. Digging into real return on investment, or ROI, means cutting through noise, looking at the realities, and spotting which numbers actually mean profit and which are marketing fluff.

Breaking Down ROI: What it Really Means for Commercial Property

Let’s get down to brass tacks. ROI, or return on investment, is the percentage that shows what you’ve actually earned relative to what you put in. For commercial property, this isn’t just a single magic number. There’s a handful of ways pros calculate ROI: gross rental yield, net yield, and what industry nerds call total return. It all comes down to what you want to measure—are you after just rental income or the big picture, including capital growth and ongoing costs?

Most investors talk about commercial property roi in terms of annual net yield. Let’s say you buy a small retail unit in Croydon for £500,000, and you make £35,000 in rental income each year. After all costs (like maintenance, insurance, empty periods), you’re left with £28,000. Divide that net income by your purchase price, and, bingo: a 5.6% net yield. That's your ROI—at least on the rent side.

But net yield barely scratches the surface. You’ll want to know what drives it. Commercial property is hammered by business rates, management fees, repairs, insurance, service charges, you name it. Empty units or flaky tenants? That’ll take a chunk out of your returns. And if you borrowed to buy, lenders always get their bite first. So, the net yield—what actually lands in your pocket each year—is usually a couple percent lower than the big numbers on estate agent websites.

Let’s not forget capital appreciation. If your original £500,000 property is worth £560,000 after two years, that’s another £60,000 in potential profit if you sell. Some serious investors factor capital gains in their ROI—that’s your total return.

Here’s a quick breakdown of the main types of ROI for commercial property:

• Gross Yield: (Annual rental income ÷ property price) x 100. Doesn’t include costs.
• Net Yield: (Annual rental income – costs ÷ property price) x 100. This is what experienced investors look at.
• Total Return: Net yield plus any capital appreciation over the holding period.

For those into specifics, here’s a handy table comparing average yields you’ll see in different sectors in the UK.

The numbers can swing wildly based on region, exact location, tenant quality, lease length, and local demand. In central London, even a pedestrian 3.5% net yield might feel like gold dust, while a 7% yield could set off alarm bells (“Yeah, but what’s wrong with it?”). Ultimately, context is everything.

What’s “Good” – Understanding the Benchmarks and Pitfalls

So, what counts as a “good” ROI in today’s market? Here’s the truth: it depends hugely on what you’re comparing it to and your appetite for risk. If your cash is sitting in a savings account, you might get a 4% interest rate in August 2025—after a decade of rock-bottom rates, that doesn’t sound too shabby. Stick your money in the FTSE 100? You’d be hoping for around 6% a year, with more volatility. UK government gilts sit about 4.2% as of this month, risk-free but barely moving the needle.

For many UK commercial property owners, a “good” ROI is usually seen as anything from 5% to 8% net—enough to beat inflation and match or edge out stocks, but without the wild mood swings of the market. Anything higher and you might be looking at tough-to-let properties or taking a punt on a struggling area. New build retail units in a city centre packed with empty shops? Maybe great rental guarantees, but don’t expect it to last if footfall dries up. On the other hand, a decent warehouse on an established industrial park outside Manchester can be a rock-solid income generator.

It’s not just about comparing to bank rates. Real investors factor in headaches, risks, and the time they spend sorting problems. Empty periods, aggressive tenants, sudden repair bills…these can all murder a headline ROI. If you set your sights only on the highest yield, you’ll probably get burned by hidden problems.

This is why some of the most seasoned players chase “boring, predictable” returns. They’ll snap up a small parade of shops with two reliable tenants, a dentist and a pharmacy. Maybe only a 5% yield, but every month the rent shows up, like clockwork. Others might gamble on converting empty office floors into serviced apartments—bigger risk, but a shot at double-digit returns if you nail the execution.

With that in mind, here are a few ways you can spot genuine deals and avoid disasters:

• Check lease length and tenant history. Long leases, blue-chip tenants, and detailed payment histories are big green flags.
• Do your homework on the area. Vacancy rates, future developments, planned transport links—all affect future yields.
• Read the small print. Service charges, repair obligations, and break clauses can quietly chop away your profits.
• Prioritise re-lettability. If your tenant leaves, how quickly will someone new move in? Out-of-date property in an unfashionable spot could go empty for months.

Remember recent shocks—2020 saw retail tumble, but industrial and warehousing soared thanks to e-commerce mania. Investors who spread their bets, or at least buy with one eye on what’s coming next, tend to sleep better at night.

Insider Strategies: Boosting ROI and Avoiding Rookie Mistakes

ROI isn’t set in stone. Smart tweaks can nudge a humdrum investment into star performer territory. The quickest and most direct way? Raise income or cut costs. But how do you do that, especially in a market that feels crowded and overpriced?

• Add value. If the property is stuck on low rent because it looks tired, upgrade it. Fresh signage, modern lighting, new windows—modest expense, but local businesses pay more for units that attract customers and feel safer.
• Negotiate lease terms. Short-term leases mean frequent headaches. Lock in longer ones (ideally with rent review clauses) and you won’t be scrambling for new tenants every year.
• Diversify tenants. If you can, look for buildings where you can house more than one business. If one goes bust, your cash flow isn’t wrecked.
• Watch the local scene. New train station? Office-to-residential conversions sprouting nearby? These can swing local demand quickly. Jump in early to catch demand before prices rocket.

Tech is also making waves. There are platforms now offering real-time footfall data, rent benchmarking, and even crowd-sourced feedback from tenants. Plug these into your due diligence routine—don’t just trust a brochure or what someone swears is “market rent”.

Beware the rookie mistake of skimping on upfront checks. Surveyors may seem pricey, but they can catch hidden horrors—like serious damp issues or outdated electrics—before you sign anything. Landlords who grudged a few grand at the start often pay tens of thousands down the line.

Don’t forget about taxes. Business rates, VAT, corporation tax if you hold property through a company—solid ROI calculations need to count every outgoing, not just the ones in the letting contract. There’s been a wave of office conversions to residential in London and Birmingham, partly to dodge punitive rates and capture higher yields, but these playbooks come with their own risks and headaches.

If you’re thinking about financing, today’s high interest rates make debt less attractive than it was a few years ago. Still, leverage can boost your ROI—just remember, banks don’t care about your grand plans, just the value they can claw back if things go south. Always factor in a buffer for rising rates or bad years.

Finally, stay picky. The best investors say no way more than they say yes. If it looks too good to be true—a double-digit yield for no apparent reason—it probably is. Drill deep, use every bit of data at your fingertips, and don’t let FOMO cloud your numbers. That’s how the canny ones in London, Manchester, or any thriving UK hub keep beating the average without tossing and turning at night.

• August 8 2025
• Archer Hollings
• Permalink

• commercial property roi return on investment property yields commercial real estate investing in commercial property
• 0 Comments

Written by Archer Hollings

• 

  View all posts by: Archer Hollings