MarketTrends: The amount spent by Irish investors in the UK in the first half of this year - which includes the €1.13 billion Savoy Group hotel transaction - matches the level of spend in all 2003 according to a new report, writes Justin Comiskey

Irish investors spent €1.26 billion on UK property in the first half of 2004 and, if the €1.13 billion Savoy Group hotel transaction is added to this, Irish investment in the UK during the first six months of 2004 reached €2.39 billion.

This is according to CB Richard Ellis Gunne's latest quarterly survey, the Irish Investment Market View. The amount spent by Irish investors so far in 2004 in the UK "represents a fourfold increase in investment spend since 2000" and "matches the level of spend in the entire 12 months of 2003" says the agency.

"This is in stark contrast to the €800 million which we forecast will be spent on commercial investment property in the Irish market this year," it notes.

Caroline McCarthy, director of international investment at CB Richard Ellis Gunne, says the "extent of the downward yield shift seen in the UK this year has led us to marginally review up our forecast total for un-geared returns in 2004 to around 13 per cent.

"The rental recovery evident in London's West End will gradually spread to other parts of the London and south-east market. Retail rental growth is expected to continue while industrial rents are expected to regain limited momentum after their recent stagnation.

"Against this backdrop, we expect continued strong demand from Irish investors for prime UK investment product going forward."

CB Richard Ellis Gunne says that around €500 million will be invested by Irish investors in Continental Europe in 2004 while, as Irish investors get more comfortable with local legal and tax structures, this level of activity will increase significantly over the next two to three years.

"One of the most significant Irish investment transactions in Europe in 2004 was the acquisition of the IT Tower in Brussels for €70.9 million, reflecting an initial yield of 6.25 per cent," according to the agency.

However, CB Richard Ellis Gunne highlights the need to make "sufficient market research before making costly investment decisions in European markets. This is particularly true in eastern Europe, where pricing seems attractive to Irish investors in relative terms but where markets in many cases are oversupplied."

Another example of growing Irish investor interest in Europe's commercial property markets is the launch by Friends First of its latest Insight Property Fund 3, which focuses on two prime office portfolios; one in Amsterdam and the other in Paris.

The fund, which is a unit-linked pension investment benefiting from the attractive tax relief available on pension funds, amounts to €80 million with a 50:50 split between both cities.

After a significant downturn since 2001, Friends First believes both markets are set to rebound strongly, especially as economic growth in the main euro-zone countries is on the increase after years of sluggishness.

"One of the main attractions of acquiring a portfolio - as opposed to a single property - is that investors get exposure to a well-diversified range of commercial properties and tenants as opposed to a single building, tenant and location," according to Friends First, which has invested some €540 million into overseas property for Irish clients.

As to the domestic commercial property investment market, CB Richard Ellis Gunne's latest quarterly research notes that demand has been "particularly strong" in recent months with the only obstacle being a "notable lack of quality product" coming on the market. Prime office yields have contracted to around 5.25 per cent, while industrial yields have stabilised at 6.5 per cent and prime retail yields stand at 3.5 per cent, it says.

According to Marie Hunt, director of Research at CB Richard Ellis Gunne, "2002 now appears to have represented the bottom of the current cycle of investment returns in the Irish market.

"Total un-geared returns achieved in the Irish property investment market in 2003 reached 12.7 per cent and we expect a similar level of return in 2004, led by the retail and office sectors."