Semi-Commercial and HMO Properties Fuel Landlord Investment Growth

Summary: Landlords are increasingly investing in semi-commercial properties and Houses in Multiple Occupation (HMOs) as these asset types offer higher yields and diverse income streams. According to Shawbrook, applications for purchases and refinancing of such properties rose significantly in the first half of 2025 compared to previous years, reflecting landlords’ adaptability amid economic challenges.

Rising Popularity of Semi-Commercial Properties

In the first half of 2025, landlords showed a marked preference for semi-commercial properties to expand their portfolios. Data from Shawbrook reveals a 58% increase in applications for both purchases and refinancing compared to the same period in 2024. New purchase applications alone rose by 32% year-on-year, outpacing the 24% increase seen between 2023 and 2024.

Among semi-commercial options, retail space above flats remains the most sought-after, accounting for 69% of landlords’ choices in H1 2025, up from 60% the previous year. This type of property appeals particularly to smaller investors, as many semi-commercial assets come with permitted development rights, allowing the addition of residential units and potential future value growth.

HMOs Continue to Attract Landlords

Houses in Multiple Occupation (HMOs) are also gaining traction, comprising 26% of Shawbrook’s buy-to-let business in the first half of 2025, a slight increase from 25% in the same period last year. Despite requiring more intensive management, HMOs offer landlords the advantage of higher income potential and the ability to adjust rents more frequently due to higher tenant turnover.

Economic Context and Landlord Adaptability

Interest rates, while stabilising, remain elevated, and landlords face ongoing economic pressures. Daryl Norkett, Director of Real Estate Proposition at Shawbrook, acknowledges these challenges but highlights landlords’ resilience and adaptability. He notes that landlords are strategically shifting towards property types that deliver higher yields compared to traditional single-let properties.

“It is no surprise that semi-commercial properties are in demand, largely thanks to the benefit of having both commercial and residential space, meaning that landlords can enjoy higher yields with more diverse income streams,” Norkett explains. “Often, there may also be future development opportunities.”

Regarding HMOs, Norkett adds, “While HMOs require more intensive management, they continue to offer good income when well run and also give landlords the ability to pass through increases in market rents more quickly as tenants more regularly turnover.”

Implications for Landlords

The increased investment in semi-commercial and HMO properties suggests a strategic pivot among landlords towards assets that can provide more stable and potentially higher returns in a challenging economic environment. Semi-commercial properties offer the advantage of diversified income streams and development potential, which can be particularly attractive for portfolio growth.

HMOs, while more management-intensive, remain a viable option for landlords willing to engage actively with their tenants and property management. The ability to adjust rents more frequently can help mitigate the impact of inflation and rising costs.

Landlords considering these property types should be mindful of the specific regulatory and management requirements associated with HMOs and commercial elements, ensuring compliance and effective tenant management to maximise returns.

Conclusion

As the private rented sector evolves, landlords are demonstrating flexibility by embracing semi-commercial and HMO properties. The data from Shawbrook underscores a clear trend towards these asset classes, driven by their income potential and adaptability to current market conditions. For landlords seeking to expand or diversify their portfolios, these property types warrant serious consideration.

Keywords: semi-commercial properties, HMOs, landlord investment, buy-to-let, permitted development rights, rental yields, property portfolio, private rented sector

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