^{Source: Savills Research}

■ September 2017 saw the all sector prime yield remain stable at 4.65%, which is 31bps lower than a year ago. Furthermore, this month saw the yield moving downwards for M25 offices, and more than half of the sub sectors are now expected to see downward pressure on their yields over the next few months.

■ These trends seem vaguely counterintuitive in a world where we have to accept that occupational risks have risen as a result of Brexit (though how and when the moment of peak risk will come remains impossible to predict).

■ If the hardening in prime yields that we have seen over the last 12 months is a reflection of a 'flight to safety', then logically yields on riskier assets should be rising. However, only shopping centres have seen their prime yield rise this year, and that probably has more to do with the rise of internet shopping and American investors' perceptions of retail than Brexit.

■ Nor are we seeing a measurable rise in secondary property yields, as the chart below shows. Perhaps a rise in secondary yields is not merited, if investors are already correctly pricing the higher occupational risk in secondary over prime?

■ Certainly the spread between secondary and prime yields, at 324bps, is wider than the long-run average, and this should give investors and regulators a degree of comfort that investors have not convinced themselves that secondary is prime (something that was prevalent in the run-up to the Global Financial Crisis).

^{Source: Savills Research}

Risk-aversion leading to falling appetite for secondary assets

■ While secondary yields appear to be broadly pricing in flat or falling rents, it is important to note that the actual number of investment deals taking place is 6% down year-on-year. This means that if any sub-segment of the market is particularly quiet, then it can take a while for enough evidence to be gathered to justify an adjustment in our or any other valuation-based yield.

■ The global hunger for prime assets has meant that the secondary market in the UK has been comparatively quiet for several years (with a 27% year on year decline in the number of deals at 7% or above in 2017). Indeed, as Graph 2 shows, 2017 has seen almost as many deals at sub 5% yields as at 7% and above. In part, this is due to a steady reweighting of the yields of all types of property, but we also believe that it reflects a declining appetite for higher risk assets in the UK.

^{Source: Savills Research}

■ While some sectors are already seeing some re-pricing of secondary assets, this is by no means the story across the board. However, any repricing that does occur is likely to be short-lived, because the driver of the rise in yields will be more about an imbalance between the number of buyers and sellers, rather than any intrinsic change to the risk profile of the secondary assets themselves.

■ There are also an increasing number of investors looking for opportunistic deals in the UK. However, as last summer showed, bargains will not last long, but the well-prepared investor could do well in the less competitive secondary space over the next 12 months.

Statistics, savings and future interest rate rises

■ The ONS has recently reviewed a variety of its sectoral accounts and one finding has been that household incomes have grown much more strongly than was previously thought. This certainly goes some way to explaining why retail sales have held up well during the recent periods of weak consumer sentiment. In particular, the savings ratio (which was previously showing a record low of 2%) has been revised upwards to nearly 6%.

■ Not only do these revisions give us a bettter understanding of why consumers are spending and borrowing so strongly, it also supports a slightly more optimistic view of the likely impacts of future interest rate rises. This is particularly topical considering that Mark Carney has recently made his membership of the hawkish cohort clear, arguing that there is global pressure to raise rates.

■ While we are less convinced of the economic rationale for a rise in the UK base rate than some are, we suspect that a 25bps increase is now likely before the end of the year. This will have a negligible impact on either spenders or savers, let alone on property yields. However, it is clear from the recent data revisions that households are less financially stressed that we previously thought, and this will be a good thing as and when rates start to rise properly.

^{Source: ONS}