Welcome to the new age - the next quarter - whatever you want to call it! To kick us off, there’s enough that’s changed in the property market to revisit this classic debate, I think. Let’s get the conflicts and biases out of the way first of all - my portfolio sits around 88% residential, 12% commercial, and I don’t have dramatic plans to change that in a major way (although I’m always interested in opportunities, and never say never). That 12% is still a decent enough quantum of commercial property, though, so I’ve definitely got reasonable exposure to the sector.

Then I think we should deal with the classics, or the hooks used by various property education companies to push their products in the best possible light. “Commercial is much more hands-free” - true during a tenancy, not so true during a void, is what I would suggest. “Commercial has better returns” - this one is harder to unpack. On paper - this isn’t the case, particularly when you apply leverage, and if you accept that 75% leverage on a commercial asset is much riskier than 75% leverage on a residential asset (assuming the 75% is based on its commercial value when tenanted) - the studies show leveraged buy-to-let kicking the you-know-what out of commercial. This will be particularly true in years/time periods where residential property appreciates significantly - commercial is much more difficult to unpack because retail may well have fallen in value for nearly 20 years now, office is very hard to value properly at the moment - but industrial, particularly well located, may well have the highest returns out of any of the property sub-classes of asset.

But returns are not just monetary - they are time, effort, and risk based (or - if you don’t view them as such - you should start). It’s very possible that return on time - or return on stress of building works - might be far greater for you in commercial property if you know what you are doing.

Here’s the one really significant factor though, for me, at the moment. Interest rates (and resultant values). This is one of the very hot topics of 2025, I really do think. An economist - and a really practical one, with a great track record of predictions that I really respect - thinks that we may well end 2025 with the base rate at 4.75%. There’s a couple of ways to get there, of course - 8 meetings in a row with a held rate, which is unlikely - or, a cut or two and a move back upwards (or two). My personal feeling is that we will only cut to 4.25%, which is (roughly) where the gilt and swap rates for 5-year financing will end up at the end of the year - not distinctly different to where they are today (more like 4%, for them, seeing 6% as the likely cost of debt on a residential property, and 6.5% on a commercial property, for limited company assets as a very broad brush prediction).