Will residential property outperform commercial property in 2026?

December 9, 2025

Residential property is just one sector of the overall market that investors can access. Others like retail property and offices can potentially offer a viable addition to a residential portfolio – but is it worth diversifying from residential property to add ‘commercial’ assets?

We’ve compared the two sectors in the following areas ahead of 2026 to help inform your investment decisions:

Market growth
Availability of supply
Security of investment

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Residential vs commercial market growth in 2026

Residential

The residential property market has returned to growth, and the future looks bright. The cost of borrowing is falling, and more people need rental property than ever before. Savills has forecast the following property value growth in different parts of the country by 2030:

North West – 31.2%
Yorkshire and the Humber – 28.2%
West Midlands – 27.6%
UK average – 24.5%

Savills also forecasts that the average UK residential rent is likely to increase by at least 12% in the next four years. In some markets, such as Manchester and Liverpool city centres, rental growth will be even stronger.

Those two factors position UK buy-to-let residential property as a strong, long-term investment in 2026. That’s especially true if you buy off-plan investment property using a mortgage, as borrowing rates are set to decrease in the next 12 months. That will make the cost of investing cheaper at a time when profits are increasing in 2026.

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Commercial

Sentiment towards retail and office investment remains mixed. The latest RICS Commercial Property Monitor shows occupier demand is largely flat across most main retail and office sectors. Except for Central London, investment enquiries show little to no growth in 2025 for these sectors:

Offices saw -3% investment activity in the last quarter
Retail saw -11% activity in the last quarter

RICS also notes that the flat occupier demand is having knock-on effects. The amount of vacant space rose across all commercial sectors in the last full quarter, causing landlords to offer incentives. That’s an additional cost which eats into income. Void periods in a residential property can be costly, but the cost is multiplied when it is an empty commercial space.

Finally, RICS notes that moderate growth is expected in prime commercial markets – like London and Manchester – but that secondary markets are likely to continue finding it tough in 2026.

The available information points to residential property being a more profitable and reliable investment than commercial property in 2026.

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Availability of supply

Research from the Centre for Policy Studies shows that there may be a shortage of up to 6.5 million homes in the UK. We also have the second-lowest number of homes per thousand people in Europe.

The government’s plan to build an additional 1.5 million homes by 2030 also appears to be behind schedule. Completions are low, and construction rates are not high enough to make up the shortfall.

That lack of supply means the demand for existing housing stock keeps on rising. Before the annual winter slowdown, Zoopla reported buyer demand was up 4% in the last year. Rental demand is up 5% and the average rent has increased 31% in the last three years as a consequence.

That means residential investors are buying an asset in demand – today and in the future. The imbalance between supply and demand means house prices and rents are set to keep increasing.

The future is not so clear for commercial property. Savills reports that high street retail vacancy rates are 13.6% and shopping centre vacancy rates are 16.9%. Furthermore, those rates have remained stable since last year. The Centre for Cities agrees, stating there is an oversupply of retail in city centres across the UK.

The story is largely the same in the office sector. While data from CoStar shows office vacancy rates have fallen slightly this year to 8.6%, that only represents a fall of 0.1%.

From the investor’s point of view, that leaves a clear choice:

Invest in residential property which is in extremely high demand and where there is not enough supply to go around.
Invest in commercial property where there is an existing oversupply and vacancy rates have remained consistent.

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Security of investment

The third consideration is what future risks each sector is facing. For residential properties, most risks are relatively minor. The recent November 2025 Budget did increase some taxes for investors, including income tax and dividend tax. However, there are also important factors limiting these risks:

New costs are being phased in, so they will not all hit at once.
They are relatively small additional costs compared to the market growth that investors can expect, so they will be a share of a larger overall profit.
Many potential additional costs did not arise, for example, Stamp Duty was not increased, and Capital Gains Tax was not raised to the same level as income tax.

The Renter’s Rights Act is also coming into force, but it is not a particularly negative picture for investors. Tenants will have some more rights and protections, but the sector as a whole will become more stable and predictable – something that is a benefit to landlords.

Retail and office properties face a much higher level of risk. The cost of living crisis means people are spending less on the high street, increasing the chances retailers will downsize or close.

Rising business costs and the rise of remote and hybrid working have seen many businesses downsize their offices. That is in contrast to residential property, where demand is so high that void periods are low or non-existent – especially in the busiest city centre markets like Manchester and Liverpool.

Finally, both retail and office are facing business rates reform in 2026, and there are fears that costs will increase. Similarly, businesses are going to continue being asked to pay more for the electricity they use. Both burdens make commercial property an even more uncertain choice.

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Investing in residential property in 2026 is the smart choice

Buy-to-let property for sale in the UK is a smarter choice for most investors than retail or office property. It is likely that residential will outperform other sectors next year, and every year up until at least 2030.

2026 is the ideal time to buy UK city centre property and maximise your potential returns. Want to learn more? Discover our latest opportunities by talking to our team today.