AN ACUTE shortage of suitable properties, particularly in the up to 500,000 price range, is slowing down the investment market, according to estate agents.

The relatively low interest rates being offered for savings has prompted investors to turn to property where they can get a higher rate of return with good, long-term capital growth.

Investment property is achieving yields of 7-9 per cent, whereas financial institutions are offering approximately 7 per cent for a five-year investment. Investors "see property as having good capital potential.

Rent reviews on some properties are pending within the next couple of years. As rents are expected to increase, this will push the returns to investors even higher.

The market is also being fuelled by extremely low interest rates for borrowers.

"There is an enormous amount of money available," says Nigel Kingston of Douglas Newman Good.

Agents also say many first-time investors have entered the market - "high net worth" individuals who have earned money over the past few years and now want to invest it. Small property companies are also competing in the market, trading up former investments.

Mr Kingston says his agency has sold a number of investment properties in the up to £500,000 price bracket. He says financial institutions are shedding investments in this range and there is a big demand for properties, whether they include tax breaks or not.

However, property owners are now unwilling to sell. "People won't sell because if they sell, they are asking themselves: what will they buy again?" says Liam Lenehan of Hamilton Osborne King.

Mr Lenehan says office and retail investments are currently producing a yield of around 7 per cent, while industrial property is producing around 9 per cent.

He says the market should continue to strengthen prices have appreciated a couple of percent, recently, and investors expect good rental growth in the next two years.

Mr Lenehan says rents should increase by 10-15 per cent across the commercial sector because very little new development has taken place.

Some investors are seeking tax-based properties, because the tax year is nearly over and they want to shelter their investments for the next few years.

Next month, Temple Bar Properties will be putting five pre-let shops at Temple Bar Square on the market, worth around £1.5 million.

According to Mervyn Feeley of Temple Bar Properties, investments in the area are producing yields of 7.5 per cent if refurbished and 8 per cent if the properties are new. He says demand is stronger than ever, but prices are still establishing themselves. "There are very few opportunities left in Temple Bar," he says.

Some investors are looking at development sites. to create their own investment opportunities according to Ronan Webster of Gunne. He says investment properties "are like hen's teeth" at present and anything that comes up is being priced out of the market.

Adrian Trueick of Jones Lang Wootton says people are not selling investment property unless they have a specific requirement for the money. Ironically, he says, an increase in interest rates "would probably move the market along a bit" because then people would probably consider selling.

Mr Trueick says there is a perception that rents will increase and he predicts office rents will increase most dramatically.

Even large pension funds are investing in smaller properties, he says. They are investing in properties in Dawson Street, South Anne Street and Wicklow Street, whereas previously they would have opted for Henry Street and Grafton Street investments, according to Mr Trueick.

Much of the agents' time is now spent looking for investments for clients, says Pat Nash of Lisney. Some clients are now beginning to consider buying"management intensive" properties, i.e., properties with a mixture of commercial and residential tenancies.

Lisney has a few investment properties on its books at present. One is an office unit at Newlands Business Park, Dublin, which is let on a 21-year lease producing £20,586 per annum. Lisney is quoting £205,000, representing a yield of about 10 per cent.

The upper end of the market is also buoyant with pension funds pre-funding developments such as units in Citywest Business Park. In other words, the financial institutions advance the money to the developer and complete the building in the expectation that it will be let.