If you're looking to move out of your home office, expand your operations, or invest in property as an asset, purchasing commercial property can be one of the most important and impactful business decisions you’ll make. It offers the chance to build equity, gain stability, and have complete control over your business environment.
But the process can feel overwhelming at first. How much will it really cost? What legal requirements do you need to meet? And crucially, how do you secure the right financing for your purchase?
In this guide, we'll walk you through everything you need to know about purchasing commercial property, from understanding your options to completing the deal.
What kind of businesses are buying commercial property?
Commercial property has a reputation for being owned by big corporations or seasoned investors. But in reality, all sorts of businesses purchase commercial property. Small retailers, growing start ups, and even freelancers are buying spaces to cut rent costs, build equity, or expand their operations.
In the UK, small and medium-sized businesses (SMEs) make up a huge portion of buyers – especially in sectors like retail, offices, and logistics. Some want to avoid rising rents and prefer the stability of owning their own workspace. Others see it as a long-term investment – UK commercial property delivered an average 7.7% total return in 2024.
Investors are also active, buying warehouses, shops, and office blocks for rental income and capital growth. But it’s not all about the money. For business owners, buying property is a way to get more control over your space, avoid dealing with landlords, and potentially enjoy tax benefits.
If you’re wondering whether purchasing commercial property is right for your business, ask yourself:
Do I need a permanent base for my operations?
Am I tired of rent increases eating into profits?
Could owning property help my business grow or diversify?
If the answer’s yes, purchasing commercial property might be worth exploring.
Types of commercial property you can buy
Like residential property, there are lots of types of commercial property available to buy. The one that’s most suitable for you will depend on your business needs, budget, and long-term goals.
Here’s a quick rundown of your options:
Offices: The most popular choice for SMEs, especially grade-A spaces in city centres or near transport hubs
Retail: Think shops, retail parks, and shopping centres
Industrial and logistics: Warehouses, distribution centres, and light industrial units
Leisure and hospitality: Pubs, hotels, and restaurants
Mixed-use: Properties that combine residential and commercial, like a shop with flats above
In most cases, the decision will come down to suitability – a tech start up is more likely to need an office than a hotel in its portfolio. But if you’re looking to invest in commercial property and don’t mind diversifying, you may want to consider the financial risk and potential reward of all of the above options.
Benefits and potential risks of purchasing commercial property
Like any major business investment, purchasing commercial property comes with both upsides and potential downsides.
The benefits of buying commercial property include:
Stability: No more worrying about rent hikes or landlords selling up – you’ll be in control
Equity and appreciation: Your property could increase in value over time, giving you a potential cash boost at some point in the future
Tax advantages: You could claim deductions on the mortgage interest, cost of repairs, and even some improvements. Plus, you could get Small Business Rates Relief if your property’s estimated rent value is under £15,000 per year
Rental income: If you’re an investor, income from tenants could cover some or all the cost of your mortgage
Pride of ownership: There’s something satisfying about owning the space where your business operates
The potential risks of buying commercial property include:
Upfront costs: Such as deposits, Stamp Duty, legal fees, and surveys
Market fluctuations: Property values can go down as well as up, so you may not be able to count on a positive return if/when you sell
Hidden expenses: Maintenance, insurance, business rates, and ESG upgrades (eg solar panels or energy-efficient heating) can all bite into your budget
Vacancy risks: If you’re relying on rental income, any period where the property is left empty can immediately impact your cash flow
Legal complexities: Leases, planning permissions, and environmental regulations can be complicated to deal with
To get the most out of buying commercial property, it’s important to go in with your eyes open. Do your research, crunch the numbers, and don’t rush into it. Try not to get set on the idea until you’ve done this, as you may find that your business is more suited to the flexibility of leasing a commercial space for the time being.
How to purchase commercial property (step-by-step guide)
Purchasing commercial property can be a long process that involves several steps, each requiring careful consideration and attention to detail.
1. Define your requirements
Before you start viewing properties, think about what your business needs.
Ask yourself:
What’s my budget? Factor in the deposit (usually 20-30% of property value), Stamp Duty, legal fees, and surveys
What’s a suitable location? Think about customers, employees, transport links and supply chains
What size and type of property do I need? Consider your current and future needs (will the property be suitable for the next five years?)
Am I buying for my business or as an investment? If it’s for investment, consider focusing on rental yield, tenant demand, and long-term appreciation. If it’s for your business, think about location, functionality, and growth potential
Once you’ve identified your needs, you’ll be better set to make the right decision for your business.
2. Secure suitable financing
Unless you’re paying cash, you’ll need a commercial mortgage or another type of financing. Unlike residential mortgages, commercial property finance has more varied options and generally requires larger deposits and charges higher interest rates.
The most common financing options for a commercial property purchase include:
Commercial mortgages
For most buyers, a commercial mortgage is the first option they consider. It works similarly to a residential mortgage, but with a few key differences.
Deposit: You’ll typically need 20-30% of the property’s value. That’s higher than residential mortgages, but it reflects the larger loan amounts and higher risks for lenders
Interest rates: Rates vary from around 4-8% but this will depend on your business’s financial health, the type of property you’re buying, and the lender you choose
Loan terms: Most commercial mortgages last for 15-25 years, although shorter terms are available if you want to pay off the loan faster (eg Tide offers 3-25 year deals which could reduce the amount of interest you’ll need to pay over the full term)
Repayments: These are usually monthly, but some lenders offer interest-only periods or flexible repayment structures
Pros of commercial mortgages:
You retain full ownership of the property
Fixed repayments can make budgeting easier
Interest payments are often tax-deductible
Cons of commercial mortgages:
You’ll typically need a strong credit history and proof of income
Missing payments could damage your credit score and put the property at risk
Some lenders require personal guarantees, meaning your personal assets could be on the line if the business can’t keep up with repayments
Is it right for you?
If your business has been trading for a couple of years, has steady cash flow, and you’re looking for a long-term financing solution, a commercial mortgage could be a great fit. But if you’re a start up or your finances aren’t as strong, you might need to explore other options.
Semi-commercial mortgages
Semi-commercial mortgages are designed for properties that have both residential and commercial parts – such as a shop with a flat above or a pub with living accommodation.
Deposit: You’ll typically need to put down 25-30% of the property value, but some lenders accept as little as 20% or up to 40% depending on your circumstances. The exact amount will depend on the type of property, its location and whether you’re an investor or owner-occupier
Interest rates: Rates for semi-commercial mortgages are usually 5-7% for fixed rates, or starting from about 2.5% above the Bank of England base rate for variable rates. They’re usually slightly lower than fully commercial mortgages and higher than residential rates
Loan terms: Semi-commercial term lengths typically range from 5 to 25 years, with some lenders offering up to 30 or even 35 years for certain properties. Both repayment and interest-only options are available, and some lenders allow flexibility for early repayment or interest-only initial periods
Repayments: These are almost always monthly. UK lenders often offer standard capital and interest repayments, with some providing interest-only options and a small number tailoring bespoke arrangements for more complex purchases
Pros of semi-commercial mortgages:
Flexibility: Suited to mixed-use properties that don’t fit standard commercial or residential mortgages
Potential for lower rates: Where the residential floor space is more than 50% of the total floor space, these residential parts of the property can have slightly lower rates compared to full commercial finance
Tax efficiency: Interest payments are typically tax-deductible against rental or trading income
Cons of semi-commercial mortgages:
Stricter eligibility: Lenders often require a solid trading history for the commercial portion and reliable income for both uses
Complex application: The process is more involved than for a pure residential mortgage
Personal guarantees: Many lenders require personal guarantees, which put your personal assets at risk if repayments fail
Is it right for you?
If you’re looking to buy or refinance a property with both residential and commercial uses, a semi-commercial mortgage is worth looking into. If the residential proportion is more than 50% of the floor or land area, the mortgage will be classed as a regulated residential mortgage which includes stricter affordability checks, more transparent lending terms, and greater consumer protection.
Bridging loans
Need to move fast? A bridging loan could be the answer. These short-term loans are designed to ‘bridge’ the gap until you secure long-term financing or sell another property.
The amount you can borrow will be determined by your business financials and trading history. Interest rates are usually higher than mortgages, usually 0.5-1.5% per month (not year!), and the repayment term will likely be between 6-24 months.
Pros of bridging loans:
Fast approval, often within days
Can be used for auction purchases or if a property chain breaks
No early repayment charges, although some bridging lenders may include a minimum term
Flexible repayment profiles allowing you to either service or “roll up” the interest until you pay off the facility
Cons of bridging loans:
It’s expensive, with the interest adding up quickly
You’ll need a clear exit strategy (eg selling another property or refinancing)
Shorter repayment profile meaning you must have a clear route to exiting the loan
Is it right for you?
If you need to act fast (eg if you’ve spotted a bargain at auction) bridging finance could be useful. But it’s a relatively expensive short-term solution.
3. Find the right property
Once you know what you’re looking for and how much you can afford to spend, it’s time to start looking for the ideal property!
Commercial property agents can be invaluable here, as they’ll understand local market conditions and will likely have access to properties that might not be advertised publicly.
You can also do your own property-hunting on popular sites like Rightmove or Zoopla – as well as being popular for residential sales, they both have a large selection of commercial properties listed on their platforms.
If you’re looking for a potential bargain, you could check auctions. But you’ll need to be ready to move fast, and you’ll need to be confident at identifying a suitable property without the usual time for detailed inspections or financing approvals.
When you’re considering commercial property, pay attention to the space itself but also other important factors too – research the local area, check planning policies for any proposed developments that might affect your business, and look at comparable sales in the area to make sure you’re offering a fair price.
Other things that can affect operating costs and future value are environmental factors such as contamination or flooding history and the property’s energy efficiency.
4. Make an offer and negotiate
Found ‘the one’? Then it’s time to make an offer. Don’t be afraid to negotiate. Your agent or solicitor can help you structure the deal and include any conditions you want to add, like making the offer subject to survey or financing.
If your offer’s accepted (congratulations), you'll move into the due diligence phase before legally committing to the purchase.
Your accountant should also advise you on the tax implications of buying the property and help structure the purchase as effectively as possible.
If your solicitor, surveyor or accountant identifies any issues, you’ll have a chance to address them, renegotiate, or withdraw from the process before you’re legally committed.
5. Do your due diligence
Once your offer has been accepted, it’s time to make sure there aren’t any nasty surprises. This is where doing your due diligence really pays off – and it’s vital to complete this step before exchanging contracts.
Your solicitor will conduct comprehensive property searches to check for any legal issues, planning restrictions, environmental concerns, or outstanding debts. They’ll also carry out title checks to confirm who legally owns the property and make sure there aren’t any hidden claims or disputes, and identify any restrictive covenants or easements that might affect your use of the property.
A surveyor’s report will highlight any structural problems, maintenance requirements, or compliance issues you might need to address. You should also consider obtaining Commercial Property Standard Enquiries (CPSEs) – these are standardised questions that help uncover important information about the property’s condition, compliance, and any potential liabilities.
6. Exchange contracts and complete
Once you're satisfied with your due diligence, you’ll exchange contracts and pay your deposit. At this point, you’re legally committed to the purchase, so make sure you’re happy with everything before you sign.
Finally, your purchase will be complete. Your solicitor will handle the paperwork, you’ll pay the remaining balance, and the property will be yours.
Don’t forget to:
Tips for a successful commercial property purchase
Buying commercial property is a big decision, but these tips can help you get it right:
Do your homework: Research the local market, talk to agents, and visit properties in person
Think long-term: Will this property still meet your needs in five or 10 years time?
Get the right team: A good solicitor, accountant, and surveyor could save you time, money, and stress
Stay within your means: Stick to a budget that leaves room for unexpected costs
Consider sustainability: Commercial properties with solar panels, EV charging, or high EPC ratings are more attractive to tenants and buyers
Plan your exit: Whether you’re selling, refinancing, or passing the property on, having a strategy in place will help you maximise your return and minimise stress down the line
Wrapping up
Purchasing commercial property is a major milestone for any business. It offers the opportunity to build equity, gain control over your business environment, and even potentially benefit from rising property values over time.
But it’s not a decision to take lightly. Success depends on choosing the right property, doing your due diligence and securing the right financing.
The good news is, Tide has a range of property finance services available, including commercial mortgages, bridging loans and second charge mortgages. Compare finance options from over 30 lenders and borrow from £50,000 to £50 million to help finance your commercial property purchase.
FAQs
How much deposit do I need to purchase commercial property?
You’ll typically need a 20-30% deposit for a commercial mortgage, but some lenders may ask for a higher amount depending on your business’s financial health and the type of property you’re buying.
What are the tax implications of buying commercial property?
You’ll need to budget for Stamp Duty Land Tax (up to 5% for commercial properties over £150,000), VAT (if applicable), and capital gains tax when you sell. You can also claim tax deductions on mortgage interest, repairs, and some improvements.
Are there grants or tax reliefs for purchasing commercial property?
There are a few. Look into Small Business Rates Relief (for properties with an annual rentable value of up to £15,000) and capital allowances for fixtures and fittings.
Can I buy commercial property through a limited company?
Yes, this is common. Plus, buying through a limited company can offer tax advantages and liability protection. But it’s worth speaking to an accountant to weigh up the pros and cons for your specific situation.
How do I assess a commercial property’s rental potential?
Check local vacancy rates, compare rents for similar properties, and look at tenant demand in the area. Logistics and prime office spaces currently offer the strongest rental growth, with yields around 5.5% in 2024.
What’s the difference between freehold and leasehold?
Freehold means you own the property and the land outright. Leasehold means you own the property for a set period (the lease term) but not the land it sits on. Freehold gives you more control, but leasehold can be cheaper upfront.
What hidden costs should I budget for when purchasing commercial property?
Beyond the purchase price, budget for Stamp Duty, legal fees (£1,500-5,000), surveys (£500-3,000), business rates, insurance, and ESG upgrades (eg energy-efficient heating or solar panels).
How do I choose between buying and leasing commercial property?
Buying commercial property can provide long-term stability and equity, but it requires a larger upfront investment. Leasing gives you flexibility and lower initial costs, but you won’t build equity. If you plan to stay put for at least five years, buying may make more sense.
Can I use a commercial mortgage to purchase property for my start up?
It’s possible, but lenders usually require at least two years of trading history and strong cash flow. If you’re a start up, you might need to explore other options.
What are the risks of buying a tenanted commercial property?
The main risks include tenant default, unexpected repair costs, and legal disputes over leases. To protect yourself from any potential issues, review the tenant’s credit history and lease terms carefully before buying.
How does the commercial property purchase process differ from residential?
Commercial purchases can take slightly longer (usually 3-6 months), require larger deposits (20-30%), and involve more complex due diligence (eg accounting for environmental checks and zoning laws). Stamp Duty rates are also higher for commercial properties.
What impact does the local economy have on my commercial property purchase?
A strong local economy can drive tenant demand, rental growth, and property values. So research employment rates, infrastructure projects, and business clusters in the area to gauge the long-term viability of a purchase.
How do I find a reliable commercial property solicitor or agent?
Look for specialists with local expertise and transparent fees. You can check reviews on the Law Society website or ask for recommendations from other business owners in your network.
Photo by Nastuh Abootalebi on Unsplash
