UK property returns, which rose steadily last year, have eased-off slightly during 1998. The Irish property market, by comparison, has continued to go from strength to strength, showing little sign of letting up. Results from the SCS/IPD Index show the Irish market recording a return of 35.4 per cent over the year to September, compared with 15.4 per cent in the UK - a difference of some 20 percentage points.

Recent reports in the UK show economic growth is weakening. By September, growth was running at 3.5 per cent per annum, half the rate at the start of the year. This has steadily undermined property returns, which fell in all three sectors over the last quarter. Most of the loss in momentum can be traced to a slackening in rental value growth. The other dampener has been the fitful progress of yields - they fell at a modest rate in the first six months of the year, but have remained on hold over the last three months.

Irish property returns have continued to flourish this year, propelled by the booming economy. Rental value growth has been running at a rate of 13.1 per cent over the year to September, against 6.4 per cent in the UK. Coupled with this, yields have been cut back by almost a percentage point over the last 12 months, producing a 26.9 per cent rise in capital values.

Only 1.2 percentage points separate the three key sectors of the UK market over the last 12 months. By end-September, industrial returns were at 16.2 per cent, compared with 15.7 per cent for offices and 15 per cent for retails. In contrast, a much wider range in returns has begun to open up in Ireland. A gap of over 11 percentage points separates industrials (at 29.7 per cent) - the worst performing sector - from offices (39.2 per cent). Strong rental value growth has provided the backbone to the exceptional performance of the office market over the last 12 months, rising by 15.2 per cent.

At an all-property level, investors in the Republic have now benefited from returns well above the UK for the best part of four years. An Irish return for the year topping 35 per cent would not appear to be an unrealistic target while 12.2 per cent is the latest estimate on the UK based on the monthly index supplied by IPD, in association with the Society of Chartered Surveyors.

Phil Tiley is an anyalyst with Investment Property Databank.