Rental Yield Benchmarks for SIPP Commercial Property

Rental yield is the foundation of a commercial property investment case. Inside a SIPP, all rental income grows free of income tax, meaning a 7% gross yield inside a pension is worth considerably more than the same yield in a personal name — particularly for additional-rate taxpayers who would otherwise face 45% income tax on that income.

When assessing a commercial property for SIPP purchase, you need to understand both the initial yield (current rent divided by purchase price) and what a sustainable market yield looks like for that property type and location. Buying above market yield may suggest a weak covenant tenant or a property with structural issues; buying well below benchmark may leave you overpaying for a property that will underperform once the lease expires.

Use our rental yield calculator to model returns on specific properties you are considering.

Industrial and logistics property has been the standout performer in UK commercial property over the past decade, driven by structural demand from e-commerce and supply chain reshoring. Prime logistics assets (large distribution units on major road networks) now trade at initial yields of 4.5–5.5%, reflecting strong investor demand. Multi-let industrial estates — the bread-and-butter of many SIPP portfolios — typically offer yields of 5.5–7.5%, and smaller trade counter units in regional locations can yield 7–9%.

For SIPP investors, smaller industrial units in the £200,000–£800,000 price range are particularly practical. They attract a broad range of tenants, leases of 5–10 years are common, and the sector has demonstrated resilient occupational demand. Void periods tend to be shorter than for offices or retail. We see a significant proportion of SIPP-financed property transactions in this sector.

Secondary office stock outside London currently offers initial yields of 7–10%, reflecting the market's uncertainty about post-pandemic occupational demand and the cost of bringing older buildings up to minimum EPC standards. Prime Grade A offices in strong regional cities (Manchester, Leeds, Edinburgh) are tighter at 5.5–7%. Yield compression in offices has reversed sharply since 2020, and investors should treat high office yields with caution — they often reflect genuine obsolescence risk rather than a bargain.

Retail property presents the most varied picture. Prime high street retail in strong market towns can yield 5.5–7%, while secondary retail and out-of-town retail warehouses range from 7% to over 10%. Retail warehouses let to food retailers (supermarkets, discounters) on long leases are considered relatively defensive; fashion retail in secondary locations carries significant re-letting risk. SIPP investors should be conservative about retail income assumptions and stress-test scenarios where the current tenant vacates.

Beyond the mainstream sectors, several specialist property types appear regularly in SIPP portfolios. Petrol stations and car washes typically yield 5.5–7% with long leases to fuel company covenants. Self-storage facilities have attracted strong investor interest and yield 6–8%. Healthcare properties (GP surgeries, dental practices, care homes) range from 4.5% for NHS-backed GP premises to 7%+ for private care operators. Pubs with long FRI leases can yield 7–9% but carry operator risk.

The key principle for all specialist assets is that the yield must compensate for covenant quality, lease length, and re-letting prospects. A 9% yield on a pub is not attractive if the operator fails and the only realistic alternative use is residential conversion (which a SIPP cannot develop). Always consider the exit — see our article on exit strategies for SIPP property investors.

Raw yield figures must be adjusted for several factors before you can compare them fairly. Net initial yield (after deducting non-recoverable costs such as managing agent fees, void periods, and capital expenditure reserves) gives a truer picture of actual income. For a multi-let estate with typical voids, a gross yield of 8% may translate to a net yield of 6–6.5%.

Covenant strength matters enormously. A 5.5% yield from a FTSE 100 tenant on a 15-year lease is a different investment to a 5.5% yield from a start-up business on a 3-year lease. The former represents near-certain income; the latter carries significant renewal and re-letting risk. SIPP lenders will also assess covenant quality when determining how much they will lend — stronger covenants support higher loan-to-value ratios.

Finally, consider reversionary yield — what the property will yield once the current lease expires and rent is reset to market levels. An over-rented property (where current rent exceeds market rent) will see its yield fall at rent review; an under-rented property has positive reversion that will enhance future returns. Our SIPP LTV calculator can help you model financing costs against projected yields.