Why Commercial Property Investors Should Pay Attention to Reversionary Income

Today’s rent is only part of the investment story

When investors assess commercial property, the current annual rent is usually one of the first figures they consider.

But the rent being paid today does not always reflect the property’s true income potential.

A tenant may have occupied a building for many years under historic lease terms, meaning the passing rent has fallen behind current market levels. In these situations, the property may offer what investors commonly describe as reversionary potential.

For the right asset, this can create an opportunity to increase income over time through legitimate rent reviews, lease renewals or reletting.

At Citrus Commercial Circle, we regularly assess commercial property across Bury, North Manchester and the wider North West where the future rental position can be just as important as the income currently being received.

What does reversionary income mean?

In simple terms, a reversionary commercial property is one where the current rent is below the level that might reasonably be achievable in the market, subject to the lease terms and prevailing evidence.

For example, imagine an industrial unit currently producing:

£20,000 per annum

but comparable modern lettings suggest a market rent closer to:

£26,000 per annum.

The difference between the passing rent and potential market rent may represent reversionary potential.

However, investors should never assume that higher rent can simply be imposed.

The lease, rent review mechanism, tenant position and market evidence all matter.

Why do properties become under-rented?

There are several reasons why passing rent can fall behind the market.

These may include:

• A longstanding tenant
• Few or no previous rent reviews
• A lease agreed during weaker market conditions
• Strong rental growth in the surrounding area
• An informal historic arrangement
• A landlord prioritising tenant retention over rent increases

None of these automatically indicate poor management.

In some cases, stable longstanding tenants can be extremely valuable.

The opportunity lies in understanding the relationship between current income and current market conditions.

Longstanding tenants can create hidden value

Longstanding occupiers are often among the most attractive features of an investment.

They may offer:

• Proven payment history
• Established operations
• Strong attachment to the location
• Lower vacancy risk

But if their rent has remained largely unchanged for many years, the property may also contain significant unrealised income potential.

This combination of secure occupation and reversionary rent can be particularly interesting to investors.

Market evidence is essential

A property is only genuinely reversionary if reliable evidence supports a higher rental level.

Investors should review comparable transactions involving similar properties in terms of:

• Size
• Location
• Condition
• Use
• Access
• Specification

Commercial property portals and market reports can provide useful context, while professional valuation advice can help interpret the evidence correctly.

The Royal Institution of Chartered Surveyors (RICS) publishes professional standards relevant to commercial valuation and rent review work.

Rent reviews may unlock income

Some commercial leases contain formal rent review provisions.

Depending on the lease, reviews may involve:

• Open market rent
• Fixed increases
• Index-linked increases
• Other agreed mechanisms

The precise wording is critical.

Investors should review:

• The review date
• The valuation assumptions
• Any caps or collars
• Dispute provisions

A rent review opportunity can be valuable, but only where the lease actually supports it.

Lease renewal can create another opportunity

Where a lease is approaching expiry, the renewal process may provide an opportunity to reconsider rental terms.

This may involve agreeing:

• A new rent
• A new lease term
• Updated repair obligations
• Revised service charge provisions

The negotiations should reflect both market conditions and the importance of retaining a good tenant.

Maximising rent does not always mean pushing for the absolute highest figure.

A sustainable rent paid reliably by a strong occupier may create greater long-term value.

Reletting can reveal true market rent

If a tenant leaves, the property can be exposed to the open market.

This can provide direct evidence of what occupiers are willing to pay.

However, reletting also introduces costs and risks such as:

• Vacancy
• Business rates
• Refurbishment
• Marketing fees
• Rent-free incentives
• Legal costs

Investors should therefore compare the potential rental uplift with the cost of achieving it.

Over-rented properties are the opposite

Reversionary potential works both ways.

An investor should also ask whether the current rent is actually above market level.

An over-rented property may initially appear highly attractive because of its strong income.

But if the tenant leaves, the property may have to be re-let at a significantly lower figure.

This can affect both value and future return.

Understanding the difference between passing rent and market rent is therefore essential.

Yield can look misleading

A property producing £30,000 per annum may look more attractive than one producing £24,000.

But suppose the first property is over-rented and the second is capable of moving towards £32,000 at a future lease event.

The second asset may offer greater long-term potential despite its lower starting income.

This is why investors should look beyond headline yield.

Future income matters.

Reversionary potential can support capital value

Commercial investment values are closely linked to rental income and perceived risk.

Where there is credible evidence that income can increase sustainably, investors may attribute additional value to that future potential.

However, the timing of the reversion is important.

An uplift available next year is different from one that may not occur for eight years.

The longer an investor must wait, the less immediate the benefit.

Strong occupier demand makes reversion more credible

Reversionary potential is most convincing where there is genuine demand for the type of property.

Investors should consider:

• Local vacancy levels
• Enquiry activity
• Recent lettings
• Competing stock
• Business growth in the area

A theoretical market rent means little if there are no occupiers willing to pay it.

Occupational demand underpins investment value.

Refurbishment may justify a higher rent

Sometimes a property’s current rent is low because the building has not been modernised.

Strategic improvements can potentially support stronger rental levels.

Examples include:

• New lighting
• Improved offices
• Security upgrades
• Yard improvements
• Better welfare facilities

Investors should assess whether the cost of improvements is justified by the likely rental uplift.

Value creation should always be commercially driven.

Smaller units often offer strong rental growth potential

In many markets, smaller commercial units can experience particularly strong occupier demand.

SMEs, trade businesses and online retailers often compete for limited stock.

Where supply is constrained, rental growth can be stronger than investors initially expect.

This can create attractive reversionary opportunities within multi-let estates.

Multi-let estates provide repeated opportunities

A multi-let commercial estate may contain several tenants paying different rent levels.

As leases expire or reviews arise at different times, the landlord may be able to gradually improve income across the estate.

This staged approach can reduce risk compared with relying on a single major lease event.

It also allows investors to build rental evidence internally over time.

Tenant retention should remain a priority

Investors should avoid viewing reversion solely as a route to extracting the maximum possible rent.

A strong longstanding tenant has substantial value.

Excessive rental pressure may create:

• Tenant dissatisfaction
• Increased vacancy risk
• Higher reletting costs
• Operational disruption

The best outcome is often a balanced one: a sustainable market-aligned rent combined with long-term occupation.

Professional valuation is important

Reversionary analysis requires reliable rental evidence and a clear understanding of lease terms.

Professional advice may involve:

• Commercial agents
• Chartered surveyors
• Solicitors
• Accountants

The British Property Federation and Propertymark Commercial also provide useful industry information relevant to commercial landlords and investors.

Professional advice helps separate genuine value from optimistic assumptions.

Bury and North Manchester can provide reversionary opportunities

The commercial property market across Bury and North Manchester contains a large amount of established industrial and mixed-use stock occupied by longstanding businesses.

In some cases, historic lease arrangements mean passing rents may differ materially from current market evidence.

These properties can be particularly interesting where they combine:

• Established tenants
• Strong locations
• Reliable payment histories
• Limited competing supply

At Citrus Commercial Circle, we believe these underlying fundamentals should always be assessed alongside the headline income.

Citrus Commercial Circle’s market insight

At Citrus Commercial Circle, we look at commercial investments in terms of both income today and income tomorrow.

A property producing a modest initial return may contain substantial long-term potential if the rent is demonstrably below market level and there is a realistic mechanism for capturing that increase.

Equally, investors should remain cautious where unusually high income is unsupported by the occupational market.

Understanding the relationship between passing rent, market rent and lease structure is one of the most valuable skills in commercial property investment.

Final thoughts

Reversionary income can create compelling investment opportunities, particularly where historic rents are being paid by established tenants in locations experiencing strong occupational demand.

However, potential rental growth should always be supported by evidence rather than assumption.

Investors should understand exactly when an increase could occur, what the lease allows and whether the occupier market can sustain the proposed rent.

At Citrus Commercial Circle, we are proud to help landlords and investors across Bury and North Manchester identify commercial property opportunities where secure existing income can be combined with genuine long-term rental growth potential.

Based in Bury. Active across North Manchester. Always on your side.

Call us today: 0161 383 1806

Email: info@citruscommercialcircle.co.uk

Visit: citruscommercialcircle.co.uk

Let’s unlock the full potential together.

Citrus Commercial Circle – Where standards meet success.