Investors in the property sector should be prepared for much lower returns this year but will still be doing better than those with stock market investments. Davy Stockbrokers points out that the monthly property index tracking the British market is indicating a slide in returns for investors this year.

Last month the IPD Index recorded an increase of 0.6 of a percentage point bringing the annual rate to 8.4 per cent. For the market as a whole the index was 4.8 per cent when compared with May 2000 but had slipped to just 0.2 of a percentage point over the past month. In the Republic, the latest figures are showing a healthy 24.9 per cent return but the quarterly rate has slowed to just 3 per cent and is expected to tighten further in the coming months. The office sector is showing the biggest capital gains but Davy expects this to change as well.

The demand for office space in particular is expected to slow. A significant amount of new space is still to become available and that will inevitably break the substantial growth in rental values seen in recent years. However, Davy's says the returns for property investors will still compare very favourably with other assets, such as equities. In the Irish market this has been reflected in a significant performance by Green Property, according to Davy.