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Commercial or Residential: What is the market's focus in 2025?

  • Writer: Callum Morley
    Callum Morley
  • Jul 16
  • 3 min read

In 2025, the UK property market is defined by divergence. Commercial real estate is cautiously climbing out of a prolonged downturn, while residential property remains resilient, stable, and income-rich. Investors are asking: where should capital go next?


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Across rental yields, price forecasts, institutional activity, and development trends, the answer is becoming increasingly clear: residential property is the standout asset class for 2025.


Price stability & recovery: residential edges ahead

After a modest cooling period in 2023–24, UK residential values are projected to grow steadily in 2025, with Savills forecasting +2.0%, the OBR +2.8%, and Knight Frank +3.5% growth (Hometrack, 2025). In contrast, commercial property has just begun recovering after a 20%+ correction over 2022–24. Prime sectors like logistics and Grade A offices are seeing a tentative 2% price rebound in 2025, while secondary offices and retail continue to struggle (CBRE, 2025).



Rental yields: Resilience in residential income

Gross rental yields for UK residential landlords now average 7.4%, rising in every region and reaching 9%+ in parts of the North (Magnate Assets, 2025). Strong demand, limited housing stock, and climbing rents are creating reliable and attractive income streams for private and institutional landlords alike. Meanwhile, commercial yields have stabilised around 5.9% (CBRE, 2025), with growth confined to prime logistics and refurbished offices. Secondary stock faces ongoing income risk from vacancy and tenant downsizing.



Institutional focus: build-to-rent leads the way

Institutional capital is flowing disproportionately into residential. The Build-to-Rent (BTR) sector is forecast to hit a record £6 billion investment in 2025 (Lambert Smith Hampton, 2025), with over 56,000 units under construction and 126,000 in the pipeline. Meanwhile, institutional investment in commercial assets remains selective—concentrated in data centres, logistics and high-spec offices—while traditional retail and outdated office stock continue to underperform.



Development Trends: Housing delivery is the priority

Residential development is receiving significant policy support. The government’s revised National Planning Policy Framework, alongside the £16 billion National Housing Bank, is helping unlock new housing delivery and refurbishment projects (RSM UK, 2025). In contrast, commercial development remains subdued, with developers focusing on retrofitting existing assets for energy efficiency rather than speculative new builds.


Investor sentiment & policy tailwinds

Surveys show residential property is the preferred investment class for both private and institutional buyers in 2025. BTR and co-living assets are attracting strong demand. Regulatory changes—such as planning reform, housing grants, and affordability support—are further boosting residential confidence. Meanwhile, commercial property remains bifurcated. Quality stock is in demand, but the majority of secondary assets are still repricing or being repositioned for alternative use (e.g. residential conversions).


Why residential wins in 2025

  • More predictable capital growth than commercial alternatives.

  • Higher and more stable income yields, driven by supply constraints and tenant demand.

  • Deeper capital pools and broader buyer demand across all levels of the market.

  • Supportive government policy and structural demand for housing.

  • Resilience through economic cycles, reinforced by recent performance.


While commercial property may offer selective opportunities in logistics and prime offices, residential real estate is the more dependable choice for investors in 2025. From long-term landlords to institutional capital allocators, the message is consistent:

Focus on residential to unlock performance, resilience, and lasting value.



References

CBRE. (2025). UK Real Estate Outlook 2025.Hometrack. (2025). UK House Price Forecasts.Magnate Assets. (2025). UK Rental Yield Report Q1 2025.Lambert Smith Hampton. (2025). UK Build-to-Rent Market Update.RSM UK. (2025). Housing Market Outlook.Savills. (2025). Residential Property Forecasts.OBR. (2025). Economic and Fiscal Outlook.Knight Frank. (2025). UK Residential Market Update.

 
 
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