Private investors have been pouring into commercial property, seduced by its recent strong returns and keen to avoid falling shares.

Irish investors have been to the fore in the boom, investing over €1 billion in UK commercial property in 2002, with individuals and consortia snapping up some of London's most exclusive retail addresses.

However, Irish investment in the market has been spread across the UK, including cities such as Birmingham, Leeds, Manchester, Glasgow and Edinburgh. The Irish were the second-biggest investors in the market in 2002, behind only the US

While financial advisers say commercial property - shops, offices, warehouses and so on - has a role for long-term investors with an appetite for risk, they warn clients to tread carefully. Ms Sue Whitbread at Chartwell Investment Management says: "Be cautious and do not be swayed by past returns."

Those returns have certainly shown that commercial property has been a way to avoid losing your shirt in the equity bear market. An investor who put £1,000 (€1,436) five years ago into the average UK equities All Companies unit trust would have £775 now, according to data company Moneyfacts. But his neighbour who picked the Norwich Property Trust would have £1,386.

Such returns have driven so many private investors to favour bricks and mortar that two big insurers have clamped down.

Standard Life, Europe's biggest mutual life assurer, last month restricted investments into its property fund until further notice, limiting investors to a maximum of 25 per cent of their contributions. In April, Scottish Widows suspended access to its unit-linked property funds. Both groups blamed the difficulty on finding adequate buildings to invest in.

Demand for commercial property fell during the past six months, according to a CBI survey released last week.

A glance at the regional breakdown showed that London and the south-east suffered the biggest change in property demand. It fell from being the best performer six months ago to being the worst. Mr Andrew Schofield at Investment Property Databank (IPD), which measures real estate returns, says: "Rents have been falling in central London because there was too much supply."

He warns of dangers that could rear their heads soon: "In the short term, the risk is how far the market will correct in terms of rental and capital values."

Despite the warnings, some participants say there is money to be made. Tops Estates, which owns UK shopping centres and avoids the weak office market, this week reported a 13 per cent rise in net asset value - a key valuation for property businesses.

And commercial property offers diversification - when your equities fall, bricks and mortar may rise. Mr Schofield says: "You definitely get some diversification. There's a very strong argument for including commercial property in a portfolio."

Commercial property can rise when equities are falling, partly because it is relatively illiquid. Unlike shares, big buildings change hands rarely. So while the stock market reacts quickly to changes in sentiment or the economic outlook, bricks and mortar respond more slowly.

But for long-term investors who are ready to take some risk, bricks and mortar have advantages. In particular, the income generated by commercial property has normally been stable because tenants had to sign leases under which rent could only be renegotiated upward. Investors have a choice of two unit trusts or can buy a life company product, such as an investment bond, to gain access to the company's property fund.

The £706 million Norwich Property Trust is the cheaper of the two unit trusts, with annual charges of 1.46 per cent compared with the £141 million Edinburgh Property Portfolio at 1.72 per cent, according to Fitzrovia, the fund data specialist.

While life assurers have restricted access to their property funds, Whitbread favours the Standard Life portfolio. Life funds enable investors to withdraw up to 5 per cent of their initial investment a year, with no immediate tax to pay. When higher-rate taxpayers cash in the investment, they pay the difference between the higher rate of tax and the basic rate.

If you still have your shirt while all about are losing theirs, should you put some cash in commercial property? Yes, say financial advisers, provided you can take the risks and tie up your money for about 10 years. - (Financial Times Service)