AFTER four years of strong returns by the Irish property market, few people are expecting a sudden change of fortune in 1997. The overall performance since 1993 has been quite spectacular at a time when inflation has ranged between 0.9 and 2.8 per cent. In 1993, the portfolio return on capital employed in property investment measured 7 per cent in 1994, it more than doubled to 15.6 per cent and in 1995 it came in at 12.9 per cent. This year will be the best in the current cycle, according to the Investment Property Databank. In the 12 months up to the end of September, overall returns reached 16.2 per cent and with rents still rising, that figure is expected to climb again by the end of this month.

With property now producing higher yields than gilts, the institutions are again looking for new property investments to allow them to reshuffle their portfolios once more.

Agents say that industrial and retail warehousing and suburban offices are at the top of their shopping list. But given the institutions' propensity for prime retail investments, what they would really like to get their hands on is part of either the Blanchardstown or Jervis shopping centre, which have been trading exceptionally well since they opened a few weeks ago.

Irish Life, for example, shunned The Square in Tallaght when it was first developed but now, six years later, is happy to sink £8 million in an extension to the complex.

Green Property appears to have no plans at the moment to dilute its interest in Blanchardstown, even though it represents its largest single investment. Likewise, the promoters of the Jervis centre also view their investment in Mary Street as a "long-term commitment" - hardly surprising given the tax breaks involved, the high standard of the centre and its strong mix of UK multiples.

There is a widely held view that instead of pumping shareholders' funds into Tallaght, Irish Life would have been better served if it had spent the money on upgrading the ILAC shopping centre, located as it is in one of the best retail pitches in Dublin. The ILAC centre has begun to look its age - all 15 years of it.

The emergence of the private investors as the dominant force in the investment market this year was facilitated by the institutions who availed of the higher values to offload many of their older office blocks in Dublin. Most of these were bought by individual investors and syndicates in the expectation that interest rates will remain relatively stable and that the upward movement in rents will have a knock-on effect on the older offices as well.

The importance that investors have traditionally placed on location when buying a property has fallen into second place behind security of income. Office buildings with unexpired leases of at least 10 years have proven particularly popular with the private punters once the income stream is sufficiently secure.

Few of these investors have put up more than 25 per cent of the purchase price and by locking into five-year interest rates of under 8 per cent, the rents generally cover the mortgage repayments. The question of whether there will be capital appreciation is the only outstanding issue.

The task of picking up second-hand office blocks occupied by public servants on long leases has become more difficult in recent months following a long overdue change of policy by the State. The Office of Public Works signalled its intention to buy in some of these buildings when it outbid private investors on three occasions.

It paid £1.37 million at auction for the headquarters building of Bord na Gaeilge at 7 Merrion Square, Dublin 2. The purchase price equates to a yield of 6.8 per cent - the lowest ever for a Georgian square. The second State purchase at £2.7 million involved a modern office building, Goldsmith House, beside Pearse Street Garda Station. The yield in this case was 7.1 per cent.

In the third instance, the OPW changed its tactics and stayed away from the Finnegan Menton auction when the Bord Iascaigh Mhara headquarters in Dun Laoghaire went under the hammer. It was duly withdrawn at auction and at that stage the OPW opened negotiations and agreed to buy the building for around £4 million. The yield will be 7.4 per cent.

But the OPW was not the only buyer settling for low yields. Property developers and investors Richard Barrett and John Ronan have had to be content with an initial yield of only 7.3 per cent at Stillorgan Shopping Centre, which they bought last month for slightly over £38 million.

A number of reversions in the coming year will bring the yield up to 8 per cent but it will take all their ingenuity to get the support of the local residents for a multi-storey car-park and, as a consequence, a further 20,000 square feet of retail space.

With Boots, Marks & Spencer, Argos and Dixons now casting an eye at other suburban centres, Stillorgan will have to find space for a major UK anchor if it is retain its appeal.

Other low yields of under 5 per cent for shopping and less than 6 per cent for offices in Dublin's International Financial Services Centre have revived speculation in some quarters that the market could be overheating.

Bill Nowlan, the former property investment director Irish Life, and now a private consultant, said some of the prices being paid for tax-driven investments were clearly above the intrinsic value of the bricks and mortar and the special value of tax benefits. These deals were going ahead because of the availability of cheap money but he cautioned that investors should not forget property was a long-term commitment and they must be prepared for the bad times as well as the good.

Mr Nowlan said, in the long term, there was little prospect of some of these investments showing any significant capital appreciation.

"I have been through three property cycles, this is my fourth, and the one characteristic of all these cycles is the failure of inexperienced people to recognise when the market is approaching its peak. I believe we are close to that peak now."

In a market where there are a huge number of investors chasing most properties coming on the market, it is hardly surprising that some of the players have turned their attention to the UK, where there is no shortage of opportunities.

Bank of Ireland Asset Managers recently invested £20 million for its managed funds and two agents, Gunne and Collier Jackson Stops, are putting a lot of effort into finding suitable investments for their clients.

Roderick Downer of Collier Jackson-Stops said there was a good range of UK properties available between £500,000 and £5 million which were let on long leases to quality tenants. These investments were showing returns of between 8 per cent and 10 per cent - the type of return that is not available in Dublin for similar properties.

Mr Downer said that with stamp duty at 6 per cent - as against 1 per cent in the UK - the higher acquisition costs in Ireland were proving a major deterrent.

Many agents are still expecting more active trading now that the private investors are putting their stamp on the market. Up to now Dublin's commercial property stock has been notoriously illiquid, not only because it has been dominated by the institutions but also because it takes time to react to any change of market sentiment. "This is partly as a result of the way in which properties are valued, using market evidence from comparable transactions.