Irish investors spent almost €11 billion on commercial property last year, with Irish, British and European markets being the favoured locations, a new report has revealed.

Last year saw commercial property markets produce double-digit gains, according to Bank of Ireland Private Banking's global property outlook report.

The bank said its own portfolio of properties was returning 22 per cent annualised returns at the end of 2006.

On a global basis, almost $680 billion (€510 billion) was invested in commercial property in 2006, up nearly 40 per cent year-on-year, it said. However, the bank said that property investment markets reached a turning point last year, with the drivers of return switching from low or falling interest rates and yield compression, to strong rental growth and property asset management.

"There is no doubt last year will be seen as a turning point in property markets; when key drivers of returns changed from yield compression, supplemented by gearing, to an emphasis on the underlying performance of the properties," said Pat O'Sullivan, head of investment strategy.

"Going forward, the key drivers of return will be rental growth and the ability to extract value through development and active asset management."

While the bulk of Irish investment spend is still in Britain and Ireland, Irish investors were showing increased levels of diversification into the euro zone, central and eastern European, US and Asian markets, he said.

The report suggested investors may need to change strategy with a greater need for selectivity in certain markets, particularly parts of the UK, components of the US market and certain European markets.

Bank of Ireland Private Banking said it would focus this year on core office markets, with strong rental growth in Paris and the Nordic markets, as well as on what it called inherently stable markets such as Brussels and Switzerland.

It said it would also increase its focus on a number of European retail property markets such as France, Spain, Italy and the Nordic countries where the sector has been supported by growing European consumer spending and a broad-based recovery in the underlying economies.

In Ireland and Britain, it would seek out value-added and opportunistic deals, it said.

The bank also intends to introduce new asset types that Irish investors have not accessed historically, such as infrastructure and the US multi-family apartment sector. It said the multi-family commercial property market, which consists of a unit of five or more apartments or townhouses available for rent with no owner-occupiers in the complex, is one of the four major commercial property markets in the US.

"Multi-family has strong income-producing characteristics due to the stability of the flow of rental income," Mr O'Sullivan said.