Leisure and Mixed-Use Property Investment

Leisure and mixed-use property offer income and diversification, but they come with operational and structural quirks a landlord should understand.

Leisure property

Leisure covers pubs, gyms, hotels, restaurants and cinemas. These are often let on long leases to operators, sometimes on turnover or partly turnover rents, so the covenant strength of the operator and the trading performance of the site matter a great deal. Many leisure uses fall in Class E or are sui generis, which affects change of use. Eligible leisure property benefits from the lower RHL business rates multipliers.

Mixed-use property

Mixed-use combines commercial and residential, such as shops with flats above. It brings extra complexity: the residential and commercial parts have different tax, lease and rates treatment, and cannot simply be lumped together. For a pension purchase, the residential part is a problem, which is where splitting the title comes in.

The trade-offs

Leisure can offer higher yields and long income, but is exposed to operator failure and consumer trends. Mixed-use spreads income across uses but adds management and tax complexity, and any residential element brings its own duties.

What it means for buyers

Underwrite the operator and the trade for leisure, and the split of uses for mixed-use. Take advice on the tax and planning position, and model conservatively.

What is special about leisure property investment?

It is often let on long leases to operators, sometimes on turnover rents, so the operator's covenant and trading performance matter a great deal.

Why is mixed-use property more complex?

The residential and commercial parts have different tax, lease and rates treatment, and any residential element brings its own duties.