Commercial property vs MSCI World: the return the brochures don't show

Commercial property vs MSCI World: where does inflation hurt less?

Which gives a better return today: a 50-square-metre shop in a mid-sized city, or the global equity index? The question isn't new, but the starting numbers are stubborn. An investor lays out a real case: a shop bought for €80,000, now valued at €130,000, with potential rent of €600 a month. That works out at a 9% gross rental yield per year, not counting the property's appreciation. The MSCI World, for its part, has averaged 8-9% a year historically. On paper, the shop wins by a landslide: 9% in rent plus accumulated capital gains. But the fine print is quite a story.

The mirage of the 9% property yield

The 9% rental yield calculation is based on taking in €7,200 a year on a value of €130,000. But that 9% is gross: it doesn't deduct homeowners' association fees, property tax (IBI), repairs, insurance or the vacant months between tenants. Nor does it factor in the risk of non-payment or, worse still, squatting. The debate itself mentions that commercial leases can be evicted in under a month, unlike homes, which can take one or two years. Small comfort when the problem is that your tenant isn't paying. What's more, the appreciation from €80,000 to €130,000 is in the past: will it repeat itself? Past capital gains don't guarantee future ones, and the property market doesn't have the liquidity of the stock market.

What if the MSCI World is less of a headache?

The MSCI World, replicated through an ETF, offers global diversification, daily liquidity and minimal costs. Its nominal return of 8-9% a year has been consistent over recent decades, but with volatility: years of 20% drops are not rare. Anyone investing in stocks must ride out the swings without selling in a panic, something not everyone manages. The shop, on the other hand, offers a more predictable rental yield, though tied to the local labour market and regulation. The advice circulating in some circles to hand the shop over to certain tenants to avoid squatters reveals just how deep the antiestéticar of losing your property runs.

Liquidity: the great forgotten factor

Selling a shop can take months or years; an ETF is liquidated in seconds. For an investor who may need the money in the medium term, the stock market wins by a landslide. But if the goal is to generate stable supplementary income, a well-managed shop can be a complement. The final decision depends on your profile: those who want returns with work involved (finding tenants, maintaining the shop) and vacancy risk should choose bricks and mortar. Those who prefer returns without lifting a finger should stick with the index. Both options are valid, but neither is a bed of roses.

The most revealing figure in the debate is the difference in eviction timelines between commercial premises and homes: under a month versus one or two years. That tips the scales towards the shop for those who antiestéticar squatting, but it doesn't eliminate the risk of non-payment. In the end, the decision comes down to whether you prefer a theoretical 9% with the risk of squatters, or a real 8% with the peace of mind that nobody will set up a hair salon in your living room.