The Motley Fool

Forget buy-to-let! Consider these commercial property REITs for 5%+ yields

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Scene depicting the City of London, home of the FTSE 100
Image source: Getty Images.

The residential buy-to-let market has been subject to significant tax changes over the past few years, and one result of this has been the growing popularity of commercial property investments. This is because, unlike residential buy-to-lets, purchases of commercial properties are exempt from the 3% surcharge in stamp duty. Meanwhile, the reduction in tax relief on mortgage interest payments won’t affect commercial properties, allowing commercial buy-to-let investors to fully offset mortgage interest against rental income.

Commercial properties can offer great advantages to investors, but there are also many responsibilities to consider. Finding commercial tenants is never as easy as finding residential ones, and in many cases, it may require specific technical expertise. Your obligations to commercial tenants will also differ from residential ones — for instance, business tenants normally have rights of security of tenure under the Landlord and Tenant Act (1954).

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!


Keeping this in mind, investing in a real estate investment trust (REIT) rather than buying a physical property might be a better investment for you. REITs can offer returns comparable to those of physical properties, yet they are relatively hassle-free and offer the benefits of diversification. Shares in REITs are also more liquid, enabling you to cash-out of your investments much more easily.

For investors looking for broad exposure to the UK commercial property market, British Land (LSE: BLND) is worth a closer look. The company, which invests in a mix of high quality retail assets and campus-focused London offices, currently trades at a 36% discount to its net asset value (NAV). As such, prospective investors have the opportunity to pick up shares in a prime commercial property portfolio for significantly less than the sum of its parts.

Dividend yield

Another advantage of British Land’s low valuation for prospective investors is the effect that has had on its dividend yield. The yield, which is inversely related to price, has risen substantially from a five-year historical average of 4% to 4.9% now. And looking ahead, shares in British Land offer a forward dividend yield of 5.1%, with City analysts expecting dividends per share will rise 3% this year, to 31p.

Those tempted by its high yield should, however, be prepared for heightened volatility in the short- to medium-term. Sluggish UK economic growth has weighed heavily on valuations, and nobody yet knows for sure what kind of environment property markets will end up facing in the possible event of a ‘hard’ Brexit.


Elsewhere, U and I Group (LSE: UAI) is another stock worthy of consideration. Although not technically a REIT, the regeneration-focused property company offers strong growth potential on the back of its broad and deep pipeline of developments.

In cities ranging from London, Manchester and Dublin, it has a pipeline of existing projects with a gross development value in excess of £7bn, against the company’s NAV of just under £380m. This includes its partnership in the £1.1bn urban regeneration project in Mayfield, Manchester, joint ventures and a mix of public-private partnership (PPP) investments. 

Demonstrating significant progress on the re-positioning of its investment portfolio, development and trading gains last year totalled £68.3m. Looking ahead, management expects gains to be slightly lower going forward, with anticipated returns averaging £50m or more over the next three years.

Trading at a forward P/E of 13.5 and offering a prospective dividend yield of 6.1%, value investors should keep an eye on U+I shares.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Jack Tang has no position in any shares mentioned. The Motley Fool UK has recommended British Land Co. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.