RECENT research shows that the gap between prime and secondary office property is now greater than at any time in the last 10 years.

So is value now returning to the secondary office sector?

DTZ research shows that the difference in yields between prime and secondary office property was traditionally about four percentage points, reflecting the added risks associated with holding more secondary property.

During the boom years (2005 to 2007), the market was swamped with easy credit and was unable to assess risk correctly. As a result, we saw significant yield compression as the yield gap reduced to as little as two percentage poijnts in 2007.

The subsequent recession saw prime property values drop by as much as 50%, but since then we have witnessed a strong correction in prime yields.

This means that prime values by historic standards are currently quite high. That said, the correction in secondary yields has not been the same and, as such, the gap between prime and secondary yields is now standing at a healthy five percentage points.

This is one of the strongest indicators yet that investors may now see value returning to the secondary sector as pricing becomes more realistic by comparison to prime stock.

During a recession, DTZ anticipates a wider spread in yields to reflect the economic headwinds.

This will have a greater impact upon letting prospects, especially within the secondary sector. While there is scope for a further widening in the yield gap to reflect these headwinds, there is little doubt that excellent opportunities are appearing. In time, DTZ anticipates that the gap will return to more historic levels.

Stock selection remains the key to investment performance.

Investors are still extremely cautious of void rates and service charge exposure, and the shortage of debt is still acting as a major drag on values for anything other than the strongest of income streams.

That said, for the right stock, there are potentially significant returns for those who are able to take on additional risk.

Since the summer of last year, we have seen a number of the opportunity funds taking a more aggressive stance on pricing, especially for some larger multi-let office lots.

Those with cash available can acquire good quality secondary investments, thus benefiting from quite high initial returns, but with the right asset management strategy could profit from an additional positive yield shift at the point of sale.