Irish investors deserted foreign property markets in the third quarter because of the intensification of the credit crunch and falling investment values, writes Jack Fagan

THE DIRECT hit on Ireland's commercial property market from the hurricane sweeping through the world's financial system has also had a major impact on overseas spending.

New figures released yesterday by Jones Lang LaSalle show that Irish investors spent €2.09 billion on foreign property investments in the first nine months of the year, little more than a quarter of the €8.2 billion invested in the same period of 2007.

The dramatic fall off in investment activity has also brought the home market to a virtual standstill because of the credit crunch along with plummeting office and retail values and weakening rental growth.

A reluctance by institutional investors to acknowledge that capital values have fallen by at least 25 to 30 per cent has prompted a stand off that is likely to continue for some considerable time.

Though Irish interest in overseas properties remained constant in the first six months of this year, the number of transactions fell significantly. Trading in the third quarter "collapsed" because of the credit crisis, according to Dr Clare Eriksson, head of research at Jones Lang LaSalle.

In the six months up to the end of June, Irish investors still spent €1.2 billion in the UK, most of it in the London area. Early re-pricing attracted the interest of the Irish buyers but, with liquidity getting ever tighter, there was then a second round of price adjustments.

The report shows that a further €267.5 million was invested in the US, most of it in large east coast cities. Germany was also targeted by Irish investors who spent a further €245 million in the nine months up to the end of September.

A total of €1.1 billion, or 53 per cent of the overall spend, went into office investments. This was only one-quarter of the €4.05 billion invested during 2007. A further €538 million, or 26 per cent, went into mixed-use schemes while €324 million, or 16 per cent, ended up in retail properties.

John Moran, capital markets director of Jones Lang LaSalle's Dublin office, suggested that the returns for the nine months illustrated that there had been all round retrenchment. "It is hard to access funds and those who have them are keeping their powder dry until pricing settles."