FIELDS for Irish investment property have hardened significantly over the past two years. This, coupled with scarcity of product, has led investment divisions to focus on the opportunities in the UK market.

In my view, the location of a commercial investment property outside Ireland is not critical provided the tenure is freehold or very long leasehold; it is within 60 per cent of prime; the covenant is a bank, government or strong plc with a minimum of 12 years left on the lease; no break clauses; and showing a yield above triple A lending rates.

The UK, in particular, is now very attractive, but why is this so? At long last, the market appears to have achieved equilibrium in both rental and capital terms. After six years of acute recession, average growth over the next five years is predicted to be 10 per cent per annum (total return). This is now a competitive prospect relative to the securities and bond markets.

For much of the recent past, there has been almost stagnation in the UK investment property market with vendors not prepared to reduce their prices and purchasers requiring higher yields.

The market was characterised by periods of inactivity punctuated by some very major deals. Overseas investors were generally reluctant to turn their attention away from central London. All this is now changing.

In a market the size of the UK, there are obviously many more opportunities to invest and a greater variety of investment products. Investment by UK funds, which now hold approximately 5 per cent of property in their portfolios - compared with 20 per cent in the 1980s - is being overtaken by foreign institutions.

German funds have accounted for 45 per cent of the turnover in the UK investment market this year. They, like others, are attracted by good quality tenants, long leases, good yields, and tax breaks. One German fund, Despa, has been involved in two of the major investment deals in 1996 the purchase of the Lloyds Building for £180 million and St Enoch's Shopping Centre in Glasgow for £160 million.

In both cases, Gunne's joint venture partners in London, Richard Ellis, acted for Despa. Other trends show the reappearance of Swedish funds and the growth in Asian investors.

With rental growth rising, it is possible to buy office buildings which are slightly over-rented at a high initial yield. As rents increase, the over-renting will fall away. Modern buildings let to plcs or government covenants with in excess of 12 years on the lease and prospects old rental growth can be purchased showing initial yields of over 8.5 per cent, as opposed to 6.5 per cent to 7 per cent for the same type of product in Ireland. The UK has the additional advantage of stamp duty at just 1 per cent compared with the Irish rate of 6 per cent

Typical Irish investors into the UK market fall into four broad categories:

(1) High net-worth individuals requiring lot sizes of £1 million to £4 million;

(2) Syndicates seeking lots from £2 million to £8 million;

(3) Property companies/syndicates looking at portfolios of £5 million-plus;

(4) Builders/developers interested in residential sites for £2 million-plus.

Good investments are not confined to central London; many regional cities are now offering exciting investment opportunities at yields unobtainable in the Irish market and Irish investors are now looking positively at places like Leeds, Leicester and Luton.

A market of considerable growth this year, and of interest to Irish developers, is the conversion of industrial and office buildings for hotel and residential use.

Some recent UK acquisitions concluded by Gunne were: 24,000-square-foot office in Streatham let to London Borough of Lambeth with 12 years left on the lease, for £1.6 million, giving a yield of 11.2 per cent; An 11,000-square-foot office in Wimbledon let to a plc covenant, for £1.68 million, showing an initial yield of 11 per cent; office and retail investment in Luton let to Whitbread plc., for £2.15 million, giving an initial yield of 11 per cent; and a large warehouse conversion adjoining the Thames, purchased for £2.85 million for conversion to 24 luxury apartments.

Overall, investment demand for commercial property is very positive. Institutions, property companies and overseas investors have all been net investors in UK real estate. Irish and UK banks are playing their part, demonstrating a renewed interest in lending to the sector. The next six to 12 months will, in my opinion, provide great opportunities in the UK property market for Irish investors.

Over a year ago, Gunne set up a specialist department to focus on the UK market. Heading up this division are Patrick Delaney (a former head of property at Hyperion and Burton Property Trust) and Denis O'Reilly (a former associate partner at Knight Frank, London). Their specialist knowledge and wide network of contacts in the UK, coupled with the Richard Ellis connection, gives Gunne great access to quality product.