South West investment across all sectors totaled £300m in Q4 2015. This took the 2015 volume to £1.6bn – a 6% increase on 2014 and 28% greater than the five year average. The Q4 volume was in line with the previous quarter. The volume of sales of office investments in the south west in Q4 2015 was, however, 25% down on the previous quarter.
• Investment into South West offices totaled £61.5m for the quarter, bringing 2015 volume to £550m – a 120% increase on 2014 and 119% greater than the five year average
• The largest deal of the quarter was Long Harbour’s purchase of St Catherines Place, Bristol for £30m, reflecting a yield of sub 5.5%
• The largest deal of the year was St James's Place’s acquisition of 10 Templeback, Bristol for £59m
Bristol remains a popular target for a number of funds and property companies as a result of the strength of the occupational market.
However, the general consensus is that after the strong yield compression in 2015, levels may now have plateaued. A number of funds are currently reviewing their strategies for this year and are cautious about pursuing new acquisitions until these have been completed. The continued volatility of the UK and global stock markets is likely to impact on yields in the first quarter of 2016 as funds come under pressure to maintain their weightings.
We anticipate that the volume of transactions in Q1 2016 will be slower than in 2015 but that activity is likely to increase from Q2 onwards.
Demand for office investments in the south west has become more concentrated on Bristol as investors become cautious towards the smaller West Country towns and cities that have seen lesser rental performance over the past 12 months. Yields this year are therefore likely to move out slightly for offices in those areas, with the exception of Bath.