Whether or not buoyed by the persistent sunshine, British households and businesses became more optimistic in August, with rising confidence in personal finances, economic conditions, long-term employment expectations and future business activity. This should be positive from an occupational perspective.

However, inflation concerns are back on the agenda. The assumption earlier this year that borrowing costs would steadily fall has weakened in recent weeks. At the end of August, the 10-year gilt yield reached its highest level since 2008. Expectations are that inflation could move back towards 3–3.5% during Q4 2026 and the Bank of England may respond with a rate increase, rather than the desired reduction, before year-end. Over the next few weeks, analysts will be watching government policy closely, as any uncosted fiscal spending could make markets more nervous given the increased cost of government borrowing.

The immediate consequence for commercial property is upward pressure on yields and a more cautious investment environment. However, the impact will not be uniform. Pricing remains relatively stable, and most sectors are not showing signs of major distress. Consequently, our prime yield assumptions are unchanged from last month and largely unchanged from a year ago. Only three sub-sectors now carry upward yield movements relative to last month, partly reflecting anticipated reactions within debt markets.

The summer's heatwaves and wildfires will have heightened long-term investor attention on climate resilience, physical risk and performance of environmentally efficient assets (see below), but they have not directly affected occupational or investment market activity to date.

Extreme weather events impact consumer behaviour and reassert need for climate mitigation

The summer's persistent heatwaves exposed the sensitivity of physical retail, and city centres more generally, to periods of extreme weather. While there is usually a seasonal decline in activity during the holiday period, the scale of the slowdown was striking, with some locations recording footfall declines of over 6% during the hottest spells in June (BRC). The metrics suggest consumers stayed closer to home, made fewer discretionary trips and prioritised convenience. This benefitted local centres and retail parks at the expense of larger city centres, where extreme temperatures made for uncomfortable travel and appear to have discouraged visits. However, Savills data on major regional shopping centres indicates that while there was some shift in footfall and spend categories, this did not have a significant impact on overall sales.

Ecommerce captured some displacement in behaviour, but there is little evidence to suggest a lasting shift in channel preference. Instead, shoppers switched between physical and digital channels according to convenience. ONS data suggests much of the summer spending was simply brought forward to May and June, with softer trading seen during July and August expected to be balanced by stronger activity either side of the peak heat period.

Dwell time data suggests length of visits to most places was broadly unaffected, while smaller town centres recorded longer average visits. This indicates that consumers may have been bringing leisure-orientated trips closer to home, something last seen during the Covid pandemic.

Footfall trends are expected to return to where they were before the summer. So, while the sweltering heat did not fundamentally alter demand, it did amplify the structural differences between retail formats and highlighted the importance of comfort, convenience, accessibility and local provision during times of disruption. While this was a temporary diversion of spending, retail destinations need to adapt to the possibility of this becoming an annual occurrence.

Furthermore, if the UK weather can cause such a swing in consumer behaviour and if extreme events are to become more frequent, the impact will extend well beyond retail. Climate resilience has moved from an ESG consideration to a core occupational and investment requirement across all commercial asset classes.

As well as displacing footfall, the heatwave increased operating costs, insurance premiums, highlighted energy security, exposed weaknesses in older buildings and transport infrastructure, and reasserted preference for high-quality, climate-resilient assets.

The strongest pricing and liquidity already favour those with the best environmental performance metrics. Prime assets typically combine modern specification, lower operational risk, stronger occupier demand and reduced future capital expenditure requirements. As a result, the gap between prime and secondary assets continues to widen, but savvy investors can still seek credible value-add opportunities.

Attention is now turning to a "supersized" El Niño event that is building as we move towards autumn. It is forecast to create further weather extremes for the UK next winter and summer and therefore remains a key real estate consideration.

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