In the long story of Anglo-Irish relations, there has never before been a period like this when Irish people come home and Irish money emigrates. Considering the returns which have been available in the Irish market in recent years, it is surprising how much investment there has been into the English and Scottish property markets.

In this year alone, the Irish market has returned 31.5 per cent overall in the year to September, compared to 12 per cent in the UK market (Jones Lang LaSalle Property Index). The SCS/IPD Index reveals that investors in Ireland have, in fact, benefitted from returns well above the UK for almost five years. Over the five years to September, 1999, the SCS/IPD Irish Index has reported a return of 24 per cent per annum, which is more than double the 10.1 per cent per annum rate of return recorded by the IPD UK Index.

The gap has widened this year as Irish investment yields continue to be relentlessly reduced, and UK yields move in the opposite direction. There is now an average two percentage point gap between the two markets. At the same time, growth in rental values in Ireland has also been exceptional. Rental values here rose by 15 per cent in the year to September and by 4.8 per cent in the UK. The multiplier effect between rents and yields accelerated the difference in capital values, which rose 30.6 per cent in Ireland compared with just 3.9 per cent in the UK in the year to September.

Many of those who have invested in the UK have done so on the basis of higher yields. It is, indeed, the case that higher yields are available - for example, a refurbished office in the inner London fringe may yield up to 8 per cent, whereas an equivalent Dublin property could yield as much as 2 per cent less.

It is, however, worth noting that many such secondary properties in the UK market are over-rented and have a generally flat, lack-lustre history of performance. At the prime end of the market, all sector yields are not very different in the UK and Ireland, and the risks of secondary property apply equally in both locations.

The sterling currency risk is a factor pushing some property funds to consider Europe ahead of the UK for overseas investment. Some individual investors have overcome the currency risk by borrowing in the UK, although in many cases cheaper rates are available in Ireland.

For certain investors, the sheer shortage of available product is driving investment into the UK, rather than a more rational portfolio diversification strategy. For those who are motivated by the latter, prime UK investments may represent an opportunity to spread risk in the medium term. However, with widely forecast returns of 12 to 14 per cent in the UK market in 2000, they are likely to have to endure yet another year of poorer returns in the UK than in the Irish market.

Margaret Fleming is a director of Jones Lang LaSalle.