New British investment in Irish commercial property has virtually collapsed, despite the strength of sterling against the pound.

Throughout the early 1990s, UK pension funds like Royal Liver and Guardian invested heavily in the Irish commercial property market and have received good returns for their investors. But now those purchases have all but stopped. According to experts on the subject, the problem is a case of differing expectations.

"The Irish market is considered kind of hot by UK investors," said Ronan Webster, director of Gunne Commercial. "They're not used to the level of growth we have here."

In an ideal world, the rising value of sterling against the pound would make Ireland an ideal place for British investment. The strong exchange rate would lower property prices, and the rapidly growing rental market would create large returns on investment. But, with rising commercial property prices, UK firms are losing their nerve.

"When you have strong rental growth, investors see much lower yields when they first purchase property, which is acceptable because you are expecting quick growth that will make up for that," Mr Webster explained. "But in the UK, they expect high yields from the beginning, and the thought that they won't get them scares them off."

In Britain, where commercial property prices are generally lower, rents normally provide investors with high returns immediately. But in Ireland, where prices are have been growing at a faster rate, initial returns are lower. And though yields are ultimately higher in Ireland, investors have to wait longer for them. According to Ann Hargadan of Lisney, part of the reason British investors want an immediate high return is because they are looking at Ireland in the same terms as the UK.

"You have to really spend a couple of years learning about this market before you can understand it," Ms Hargadan said. "There are still good opportunities here, but UK investors don't always see them that way."

The differences between the two countries are clear in the numbers as well. According to the Investment Property Databank, a London-based organisation that creates market indices, performance in Ireland grew 254 per cent from 1993 to 1999. In the same period, performance in Britain grew only 91 per cent. But some experts understand the actions of the UK firms. Liam Lenihan of Hamilton Osborne King explained there are better opportunities elsewhere.

"Property yields in other parts of Europe are 2 to 2.5 percent higher than they are here," Mr Lenihan explained. "That negates any advantage one might have from a currency point of view."

And other problems are cited as well to explain the lack of UK interest. Competition among Irish investors for prime investments is so high that foreign investors are often pushed out. And the small size of most lots in Ireland makes it unattractive to, for example, German pension funds that need larger investments.

Still, as Ms Hargadan pointed out, there are still plenty of UK and other foreign firms interested in Irish property. They are simply waiting for the right time to buy.

"There's a lot of interest in Cork," Ms Hargadan said. "A lot of interest in provincial retail, because there is a perception out there that it is better value than investing in Dublin."

But provincial or urban, Irish commercial property values are still expected to grow by between 7 to 15 per cent over the next two years, according to Ms Hargarden.