Commercial or residential real estate: what to invest in?

Investing in real estate remains a safe haven for many savers. However, when faced with a multitude of opportunities, one question often arises: should you focus on residential or commercial real estate? Both segments offer distinct advantages and challenges. This article explores their characteristics to help you choose where to invest your money wisely.

1. Residential real estate: steady, secure demand

What is residential real estate?

Residential property refers to housing intended for private use, such as apartments, houses or second homes. It is the most common type of real estate investment for individuals.

Benefits

1. Stable, predictable demand
   The need for housing is universal, which guarantees constant demand, even in times of economic crisis. Residential properties located in dynamic areas (close to urban centers, schools or transport) generally find buyers easily.
2. Simpler management
   Renting an apartment or house is often less complex than managing a commercial property. What's more, numerous tax incentives, such as the Pinel law and LMNP (Loueur Meublé Non Professionnel) status, encourage investment in residential rental property.
3. An affordable investment
   Residential real estate allows you to get started with more modest budgets. Studios and small apartments, in particular, are prized for their high rental yields.

Disadvantages

1. Often limited returns
   Gross rates of return for residential property are generally between 3% and 5%. This can be lower than for commercial real estate.
2. Risks of non-payment and rental vacancy
   Landlords are exposed to the risk of non-payment and periods of rental vacancy, particularly in unattractive or poorly served areas.

2. Commercial real estate: attractive returns

What is commercial real estate?

L'commercial real estate encompasses property used for professional purposes, such as offices, shops, warehouses and logistics centers. Less accessible to the general public, it often attracts sophisticated or institutional investors.

Benefits

1. Higher returns
   Rents on commercial premises generally offer higher gross returns, in some cases as much as 7% to 10%. As commercial leases are often signed for long periods (3 to 9 years), they provide a degree of financial stability.
2. Less ongoing management
   Commercial tenants generally take responsibility for part of the maintenance and service charges, depending on the terms of the lease. This reduces the landlord's role.
3. Portfolio diversification
   Investing in commercial property allows you to diversify your real estate portfolio and limit your dependence on a single type of tenant.

Disadvantages

1. A riskier market
   The long-term future of commercial tenants depends on their economic success. In the event of crisis or bankruptcy, vacancies can be prolonged.
2. Highly exposed to economic cycles
   Unlike residential property, commercial real estate is strongly influenced by economic conditions. For example, offices can suffer from the rise of telecommuting, while some retail outlets suffer from competition from e-commerce.
3. A more expensive investment
   The purchase price and ancillary costs (notary, agencies) of commercial premises are often higher than those of residential properties. This can be a barrier for smaller investors.

3. How do you choose?

Your investor profile

• If you're looking for an investment that's affordable, secure and easy to manage, residential is often the best choice.
• If you're prepared to take more risk for higher returns and have greater financial capacity, the commercial may be more attractive.

Location

The golden rule is location. In the residential sector, target areas where rental demand is strong. For commercial property, give priority to strategic locations for professional activities (shopping areas, city centers, business districts).

Taxation

Residential property benefits from a variety of tax incentives (Pinel, Denormandie, LMNP), while commercial property sometimes offers specific tax optimizations, such as book depreciation of commercial walls.

Evolving trends

Analyze long-term trends. For example, the rise of e-commerce could limit demand for traditional commercial premises, but boost demand for logistics warehouses.

4. Conclusion: evaluate your objectives

The choice between residential and commercial real estate essentially depends on your financial objectives, risk tolerance and resources.

• If you're looking for an investment that's secure, affordable and easy to manage, residential real estate is the right choice.
• On the other hand, if you're looking for higher returns and are ready for a challenge, commercial real estate can offer interesting opportunities.

In all cases, it's essential to carry out an in-depth study of the market and, if necessary, to surround yourself with professionals to maximize your chances of success. Investing in real estate is a long-term project: take the time to evaluate your strategy before taking the plunge.