Irish investors spent a massive €2.5 billion in the UK in 2003. This year,they are expected to spend over €500m on European commercial property - and central and eastern European markets are becoming increasingly attractive. Jack Fagan, Property Editor, reports

Irish investors spent €2.5 billion on commercial property in the UK during 2003 as against €900 million at home, according to research published today by property consultants CB Richard Ellis Gunne.

The report said that while market conditions in the UK showed many similarities with the Irish property market, a better choice of product, greater yield potential, cheaper transaction costs and better quality covenants were available in the UK. Tight supply in the domestic market was the was the main factor in attracting Irish investors to the UK.

The report shows that 52 per cent of Irish commercial investments in the UK last year was based on the office market; 42 per cent was targeted at retails, 3 per cent on industrial property, 2 per cent on a mixture of office and retail investments and 1 per cent in other forms of investment.

Caroline McCarthy, director of European investment at the agency, said the appetite for retail property was currently dominating Irish investor demand with well-let prime high street retail premises throughout the UK highly sought after by Irish investors.

Prime yields for such investments had come under pressure in the last six months, contracting to about 5.25 to 5.5 per cent for lot sizes of between €5 million and €10 million, and substantially lower yields for smaller lot sizes.

With signs of recovery in the office sector in central London now emerging, demand for office property was improving with strong competition for development site opportunities in particular.

Gunne is forecasting that Irish investors will spend over €500 million on European commercial property in 2004, as many seek to diversify their property portfolios.

With continued demand for office and retail opportunities in prime cities in western Europe , particularly Paris and Brussels, emerging markets in central and eastern Europe were becoming increasingly attractive to Irish investors considering the yields available in these markets.

Gunne says that the 12.7 per cent returns from the Irish market last year represented the bottom of the current cycle and the market is once again on an upward trajectory.

That said, the agency says it does not foresee a return to the heady heights of the late 1990s when returns frequently exceeded 30 per cent.

Instead, considering that prime yields had contracted significantly, the agency does not expect that returns will "stray much above 10 per cent in 2004".

The total spend on investment propertywill also contract simply as a result of the scarcity of good quality investment stock.