InvestmentFunds:The first global Reit fund to have been launched in the Irish market has attracted a high level of investment from both institutional and private investors. And, in a separate European Property Growth Fund operated by Standard Life, Irish institutions have subscribed more than €200 million of the €800 million raised for property investments.

The real estate investment trust (Reit) was launched here at the beginning of February by Standard Life in the expectation that it would appeal to SSIA savers when their accounts mature this year. In the first month alone, private individuals invested more than €13 million in the fund which is to buy top properties in Asia, Europe and the US. The minimum investment is €10,000. A Reit trades openly on the stock market and owns and manages income-producing commercial or residential property. Most of its taxable income is distributed to shareholders via dividends.

The fund, which is expected to show returns of 12 per cent before charges in 2007, will have a gearing of about 30 to 35 per cent.

With 40 per cent of the fund earmarked for the Asian property market, the strategy underlines Standard Life Investments' faith in the Singapore and Hong Kong office sectors where rental growth is expected to reach 20 per cent this year. In 2006 rents rose by 60 per cent because of a pent-up demand following the Singapore government's decision to cut taxes from 20 to 18 per cent to bring them into line with its main competitor, Hong Kong.

Svitlana Gubriy, Standard Life's assistant fund manager, told a press conference for the Irish media last week that they would be concentrating on the office market because it "invariably reacts much faster to economic growth than the retail sector and does not have pronounced property cycles". Despite the huge demand for space in Singapore, the next round of office developments are not due to be completed until 2010.

As one of the major world players in the property market, Standard Life Investments knows only too well that strong economic growth means strong property markets. It plans to capitalise on the buoyancy in both Singapore and Hong Kong and, in Europe, much of its investment activity looks like being concentrated, not on Germany, but on the office markets in France and Spain. Scandinavia also offers interesting prospects provided the office investments are not overpriced, according to Gubriy, a leading expert on the international property market.

With inflation rates almost negligible in Germany in the last three years, owners of retail properties will be unable to produce evidence to justify substantial rent increases. Gubriy's insistence that there are better investment opportunities outside Germany will come as a surprise to many Irish funds which have been rushing headlong into Germany in the belief that the end of its long recession is in sight and that a property boom must be around the corner.

Even more interesting is Gubriy's policy of not investing in the UK's high streets. "In fact, we don't see a future for high streets globally, and one of the reasons is that shopping formats have changed significantly over the last 10 years," she says.

With retailers now demanding larger and more flexible retail units on the high street, she says that these shops are simply not available. And with traders no longer content to put their businesses into small units, she believes that the high streets will in the future cater mainly for boutiques. As investors, she says, it is easier for them to go to the shopping centres or retail parks and count the number of people carrying shopping bags. "It is easy to discover if the place is trading well or not."

Another senior property executive in Standard Life, Mark Meiklejon, also emphasised that they were "not positive" about high streets because they believed that the marginal pound of spending in most economies would tend to gravitate towards the shopping centres or retail parks. "If there is any pressure on consumer spending patterns the high street tends to be disproportionately affected. The high street is not particularly attractive."

In Dublin Standard Life reports a continuing strong interest by Irish pension funds in their European Property Growth Fund, perhaps because of the volatility of the stock market and over exposure to property in Ireland and the UK. The Irish are happy to diversify into European property, according to the company. The fund, which has a 50 per cent gearing, has been showing an annualised return of 17.7 per cent over the last three years due mainly to an exceptionally strong performance in the Spanish office market.

Apart from Spain, the fund now has investments in France, Portugal, Belgium, Poland and Germany.

Does Standard Life accept that it sold off its Irish property portfolio too soon given the exceptional returns in recent years. "Absolutely," says investment director Mark Meiklejon. But he says the reason for withdrawing from direct investment in the Irish market was done "on the right fundamental basis . . . in the sense that the market was expensive relative to other markets. I think it has surprised everyone, especially the Irish, as to how well the market has done."

The proceeds from the sale of the Irish property investments were reinvested in the UK and Meiklejon says he suspects that the UK has outperformed the Irish market since then.

Meiklejon complained about the high cost of buying into the Irish market, particularly the 9 per cent stamp duty on transactions which affected the overall return.

However, he admitted that "there are some retail opportunities in Ireland that are very attractive at the moment."

They had not targeted any particular property. An Irish shopping centre was not attractive to them just because it was in Ireland but rather how it compared to a shopping centre in Helsinki, Belgium or Manchester. At the moment pricing and dynamics in the Irish market did not look particularly attractive, he said.

With property returns increasingly influenced by the currencies used, Standard Life's currency expert Kenneth Dickson said he believed that the euro was overvalued against the dollar by about 16 per cent.