The financial institutions increased their net investment in the Irish property market to £92 million last year - but the figure was overshadowed by the estimated £500 million spent by private investors, according to the Investment Property Databank (IPD).

Investment flows in recent years have shown a strong correlation with property returns, according to IPD, which held its annual results presentation in Dublin last week.

Last year's net spend of £92 million by the institutions compared with £59 million in 1997. Receipts from sales came to £61 million, down by a third on last year.

IPD reported a boom year for Irish property in 1998. The rate of return, which improved for a third year in succession, reached its highest level at 38 per cent. This overall figure breaks down into an 8 per cent income return, a 15 per cent rise in capital values due to rental growth and a 14 per cent rise in value due to falls in yields. Phil Tily of IPD told the meeting that a gap of 13.5 percentage points - the widest spread on IPD records - opened up between the three sectors of the market.

Offices extended their lead with a return of 42.2 per cent. Retails came in second with a return of 34 per cent, followed by industrials with 28.9 per cent. Office returns forged ahead because of strong rental value growth and large falls in yields. A market breakdown reveals the overriding strength of Dublin offices, which recorded returns of 42.9 per cent in the city centre and 41.7 per cent in the suburbs.

In the retail sector, the provincial segment took up the lead with a return of 40.9 per cent, due to the largest decline in yields. Grafton Street stood up well with a return of 35.2 per cent, while Henry Street and Mary Street lagged behind at 26 per cent. As in 1997, institutions showed a preference for office property, investing a net sum of £76 million into this sector. In contrast, the funds reduced their exposure to retails, particularly shopping centres in suburban Dublin.