It is a grey Wednesday morning at London's Radisson Portman Hotel and auctioneer John Barnett is hard at work. Mr Barnett is selling a portfolio of largely secondary retail properties to a cultural pastiche of investors who have emerged as a force in the UK commercial property market - private investors.

Over four hours, Mr Barnett manages to unload almost 130 lots of property to raise £21.5 million sterling, roughly double the size and value of the amount his firm, Harman & Healy, would have expected to raise from a similar auction at the same time last year.

According to property consultants Jones Lang LaSalle, the Harman & Healy auction is symptomatic of a wider trend. In a recent analysis on portfolio transactions in the first quarter of 1999, JLL notes two developments. "The first is the rise of the private investor as a key player in portfolio transactions following an almost total absence from the portfolio market previously. The second is the virtual disappearance of institutions and banks as purchasers from their 30 per cent share last year."

In analysing the reasons for the shift in UK portfolio investors, it is interesting to look at what is on sale. Much, JLL notes, is not "institutional" property.

That is, it is property which is sub-prime, let on short leases, and which requires intensive management. Such properties are unlikely to interest institutional investors, but are highly attractive to private buyers.

"We are looking to spend another £200 million over the next 18 to 24 months," says Sol Zakay, chairman of Topland Group, a private property company with more than £500 million in assets. The company recently bought a warehouse in Stoke let on a three-year lease to Michelin Tyres on a lease yielding 7 per cent. Mr Zakay says he believes the tenant will renew the contract and the risks of vacancy are low, a chance an institutional buyer may not be willing to take.

Harman & Healy's properties are mostly high street shop units with a residential property attached, and auctioned to a crowd that includes sharp-suited young men, Sikhs, Jews in black gabardines and a few grandmothers as well.

A warehouse unit in Northwood let to Carpetstyle on a lease expiring in two years, producing income of £5,500, sells for £80,000 - a yield of about 7 per cent - "to the man at the back in the blue shirt. And other clothes too".

Michael Cleal, a director in the national investment team at JLL, says the key to all the private investor demand is interest rates. With UK rates at their lowest in 30 years, five-year swap rates are at 5.3 per cent to 5.4 per cent, meaning a private investor can borrow at 60 to 100 basis points over that.

The prospective buyer of, say, a £75 million portfolio could put up 10 per cent in the form of his own equity, borrow £50 million from a bank at less than 6.5 per cent, put mezzanine borrowings in place at 8.5 to 9.5 per cent and effectively finance the purchase of a property yielding 9.5 per cent at no cost.

The 9.5 per cent rate of return on the equity, Mr Cleal notes, is far better than that which could be obtained in a building society. And with equities at current levels, shares look a risky bet too, he says.

Most of Europe also has cheap money, and that is encouraging private investors in other markets. Neil Bamford, head of European investment at JLL's fund management division, says that private investors have been steadily increasing in the Spanish market, for instance. France too has a broadly equivalent participation by private investors, although with a greater number of foreigners, particularly from Germany and Britain.

In the Netherlands, low interest rates have boosted private investor participation in the domestic property markets to roughly 20 per cent of all purchases in the past two years. Much of the investment is highly leveraged, and, increasingly foreign, with Germans the most active buyers. Central and eastern Europe are also generating interest. "Hungary is buzzing along in the market for private investors," Mr Bamford says. "The majority of deals this year have been on behalf of foreigners, mostly Germans and Israelis."

The one European country where private investors show signs of diminishing interest is Germany, perhaps the market where they have been strongest. Private investors have been spurred by very generous tax treatment for property investment. Any property held for longer than two years is not deemed trading property, and therefore does not attract capital gains tax, nor is rental income taxed.

Jonathan Radgick, auctioneer at Harman & Healy, says private investment in property, he says, is the disclaimer of class. "It's the one kind of investment where it doesn't matter what school you went to."