Where are the investment opportunities?
The South West has traditionally proved to be a resilient commercial property market. Generational wealth, a relatively constrained supply of good-quality stock and continued rental growth (particularly since the Covid-19 pandemic) have helped maintain investor interest.
The region is now entering a more selective phase. Following the sharp rise in borrowing costs and the subsequent correction in property values, investors are returning to the market cautiously. Demand is focused on assets offering secure income, credible rental growth, strong tenant covenants and good environmental performance.
Bristol remains the South West’s principal investment centre, but it is far from the only market presenting opportunities. Supply constraints, regeneration projects and specialist local industries are supporting activity in Bath, Exeter, Plymouth, Cornwall and several of the region’s other established commercial centres.
Confidence is beginning to return
We have experienced an increase in enquiries, particularly in Cornwall, while other parts of the region are beginning to show signs of renewed activity following a quiet summer. Recent political and economic uncertainty has undoubtedly affected confidence, with some investors choosing to delay decisions until the outlook becomes clearer.
The number of commercial investments formally brought to market has remained limited. This lack of stock partly reflects the gap between vendors’ expectations and the prices buyers are currently prepared to pay. Many owners remain reluctant to sell at values below those achieved three or four years ago, while purchasers are seeking higher returns to compensate for more expensive finance and greater uncertainty.
Nevertheless, there are signs that sentiment is improving. Recent opportunities have included a high-yielding freehold parade of retail units in Portishead and a prime office investment in Southernhay Gardens, Exeter. The yields attached to some current opportunities are notably higher than historic levels and, in certain cases, have reached double digits.
Prime assets and high-quality locations remain the main focus. Rather than pursuing an immediate sale, some owners are concentrating on improving value through lease extensions, regearing, refurbishment and planning initiatives. As a result, investments offering genuine asset-management potential are likely to attract particular attention.
Industrial remains the strongest sector
Industrial property continues to be the most resilient part of the regional market, although conditions are not as strong as they were at the height of the post-pandemic expansion. Occupier demand has softened, while the potential for further rental growth is becoming less certain.
Higher interest rates have also changed investment pricing. Multi-let industrial estates trading at net initial yields of around 6.5% are no longer commonplace unless the asset is exceptional in nature. At the same time, available space remains limited across much of the South West, and some landlords continue to base their expectations on previous record-high transactions.
Demand for industrial property is still stronger than for other mainstream sectors, but realistic pricing will be essential if transactions are to proceed. Well-located estates with a diverse tenant base, manageable capital expenditure and opportunities to increase income should remain attractive.
Office demand is increasingly selective
The office investment market continues to face significant challenges, with generally subdued enquiry levels. Where demand exists, it is concentrated on the best buildings in the strongest locations.
Obsolescence has become a central consideration. Investors are increasingly reluctant to acquire offices that may require substantial upgrading within five to ten years, particularly as occupiers place greater emphasis on energy efficiency, amenities and the quality of the working environment. Best-in-class buildings with strong sustainability credentials are therefore better placed to retain tenants and protect long-term value.
Yields for some prime office investments are currently around 10% net initial yield, reflecting the risks attached to the sector. However, the conversion of older offices to residential use has reduced the supply of good-quality workspace in some locations. Recent enquiry levels in Plymouth have been encouraging, suggesting that selected office assets could offer opportunities where pricing reflects current market conditions.
Retail performance varies by location and use
Retail property continues to face competition from online shopping, out-of-town destinations and changing consumer habits. Secondary locations have experienced the greatest pressure on values, while weaker assets can be difficult to let or sell.
The outlook is not uniformly negative. Retail performance is closely linked to employment, office occupancy and wider town-centre activity. As more people return to workplaces, there may be renewed demand for well-positioned, experience-led retail, leisure and food-and-beverage uses.
Investor interest remains strongest for essential and convenience-led retail. Food stores, community shopping parades and roadside properties continue to attract demand, particularly where they serve an established local catchment and offer dependable income. By contrast, secondary retail assets are likely to remain under pressure.
Locations offering potential
Bristol continues to offer the South West’s greatest depth of occupier and investor demand, but opportunities can also be found elsewhere.
Bath benefits from limited supply, an affluent population and a strong tourism economy. Exeter is expanding as a regional business and employment centre, supported by good road and rail connections. Plymouth offers regeneration potential and benefits from its established defence, marine and maritime industries.
Swindon, Gloucester and Cheltenham also remain important commercial markets. Their strategic locations, employment bases and transport connections create opportunities across the industrial, logistics and office sectors. Cornwall, including Truro and selected coastal locations, is attracting greater interest, although investment performance can vary significantly between individual towns and assets.
What are investors looking for?
The priority for most investors is reliable income. Properties with financially secure tenants, robust lease terms and clear prospects for rental growth are in the strongest position to attract capital.
Energy performance is also becoming increasingly important. Buildings with strong EPC ratings and credible environmental, social and governance credentials are generally considered better equipped to meet future occupier requirements and regulatory standards. Assets requiring extensive improvement may still appeal, but only where the purchase price properly reflects the likely capital expenditure and delivery risk.
Risks and outlook?
The market continues to face several challenges. Borrowing and construction costs remain high, secondary offices are vulnerable to declining demand, and EPC compliance may require significant investment. Liquidity can also be limited outside the principal cities, while performance is often dependent on local infrastructure, employment and economic growth.
A period of greater stability in interest rates could help narrow the gap between buyers and sellers. If vendors adjust their expectations and purchasers gain more confidence in financing costs, transaction volumes should begin to recover.
Capital is likely to remain selective, concentrating on well-connected locations, resilient sectors and energy-efficient buildings with secure income. Opportunities will also emerge where active management (through lease events, refurbishment, repositioning or planning) can create additional value.
Ultimately, the South West should not be viewed as a single, uniform investment region. It is a collection of distinct local markets, each shaped by its own industries, demographics, infrastructure and supply constraints. Successful investment will depend on understanding those local differences and identifying assets whose quality, income and potential justify the risks.
Looking to invest in South West commercial property? Get in touch with our investment team to discuss current opportunities.
