Institutions sit on their hands, but private investors head for the UK

While life funds have not yet begun to offload commercial properties to meet the cash demands of investors, activity is slowing down and yields are on an upwards swing. Liquidity is not yet seen as a problem though pressure continues on property funds.

Institutional investment has virtually dried up with nearly everyone "sitting on their hands", according to one property source. However, a considerable number of private investors with plenty of spare cash and the support of the banks are looking for bargains, but with no immediate sign of any becoming available, they are increasingly concentrating on the UK where returns are still more attractive.

Mr Bill Nolan, property investment and development consultant, has argued that the spurs in the property market have been "greed and fear".

Noting that "greed has fuelled it over the past five years" he said "fear will emerge in time".

As he sees it, "a lot of people think they can walk on water". Nevertheless, he doesn't think "there is any serious liquidity problems", a view echoed by other industry experts.

Mr Nolan pointed to the imbalance between domestic yields and those available in the UK. Yields here have fallen from 7 per cent to about 5 per cent in the domestic market but he expects them to rise to 6 or 7 per cent over the next three years. He said an investor can get a 7.5 per cent yield with good covenants in the UK, and the disparity with the domestic yields was unsustainable.

Mr Jerry Burke, head of property at Bank of Ireland's corporate banking, said although the markets had changed in fundamental ways he sees "no panic, no depressed selling". Arguing that "these things take time to manifest themselves in collateral terms", he said it was too early to see what direction markets would take.

While conceding his bank is more cautious, he stressed there is no need to panic. Institutions and investors are "taking stock", waiting to see what happens. It is a "difficult and different" market but he doesn't see the "whole house of cards falling".

Another banker, Mr Peter Butler, Anglo Irish Bank's head of banking in Ireland, said "liquidity was not a big issue" and his bank would be supporting its customers. He feels that banks are not going to take an irrational view, "there is no use in panicking". Anglo Irish, he stressed, is " open for business" and starter homes and social housing are still "going well". Like other bankers, he noted the market is "very hard to read".

The tourist industry is most affected and the hardest pressed are those dependent on US customers, though on a positive note, he pointed to those who are refocusing their marketing on the domestic and European trade.

Margaret Fleming, a director in the investment department at Jones Lang LaSalle said "there are a good deal of private investors in the market". She added she is "not encountering any liquidity problems for prime product, but the other stuff is harder to sell".

Mr Liam Lenehan, commercial investment director at Hamilton Osborne King, said everything had been put on hold and would have to wait.

However, he noted a pick up in some investment properties.

Friends Provident was first in the firing line last month following brokers' recommendations to sell part of their property units. Roger Mansfield, the property manager, said there continues to be net outflow from these funds, but the position has "steadied". The encashments have been funded by transferring some properties into other units but, so far, they have not had to sell any of the properties.