While the overall size of the investment market has increased very significantly in recent years, a notable feature has been the declining role played by institutional investors - the traditional dominant force. The principal - and obvious - reason has been the relatively recent emergence of property companies and substantial private investors as major players. They have the ability to move more quickly and aggressively than is normally possible within the understandable constraints imposed by most institutional decision-making processes. A significant proportion of the activity by non-institutional investors in recent years has been tax driven, with intense competition among "high net worth" investors for large-scale propositions, notably in the IFSC and East Point Business Park.

The investment criteria on which some of these purchases were based would have little relevance to most institutions whose tax exposure is limited or, in the case of pension funds, nil.

Another important factor, however, has been the reduced appetite for property among institutions due substantially to a disappointing investment performance relative to gilts and equities during the depressed market conditions of the first half of the decade.

This period was characterised, in particular, by falling values in the office market due to weak demand and an oversupply of space. Whereas property holdings of between 10 and 15 per cent as a proportion of total investment portfolios were common during the 1980s, this had declined to an average of about 6 per cent in 1996 for Irish pension funds, based on data published by the Irish Association of Pension Funds.

Not all of this decline would reflect an active disinvestment policy, but has resulted inpart from the relative out-performance of equities during the period. Present indications are, however, that the downward trend may now have levelled off and expectations are that institutions will be competing more aggressively in the immediate future to increase their overall property holdings.

The more obvious reasons for this would include:

Renewal of confidence in the property sector based on recent performance;

Strong market outlook and perception that current yield levels are still relatively undemanding;

Recognition of property's fundamental merits as an investment medium, i.e. diversification, low volatility and real (i.e. not paper) asset.

Other considerations emerging from provisions announced in the recent Budget which may influence overall activity in the investment market are: (a) The £25,000 cap on an individual investor's capital allowance claims in respect of designated area investments (plus hotels) is likely to considerably reduce the volume of activity in this area below the levels experienced in recent years; (b) The abolition of tax credits on dividend payments - estimated to cost Irish Occupational Pension Schemes approximately £25 million annually - will increase the relative attraction of rental income to gross funds. Although the latter issue, by itself, is unlikely to cause a major shift in investment weighting, all the indications are that institutions will exert greater influence in the immediate future than in the recent past.

What then are likely to be the major influences affecting institutional activity in the investment market during the year ahead? I would suggest that these will include:

Shortage of product and the "weight of money" factor will continue to drive yields downwards and, therefore, encourage significant institutional participation in development financing to achieve enhanced returns. This will occur particularly in the office market where the demand/supply situation is currently extremely favourable and, in some instances, institutions may adopt a direct development or joint venture position with full exposure to development and letting risk, as well as to the upside in a rising market of an early letting at better than projected rent levels;

Large ticket investments, particularly well-located and established shopping centres, will be in strong demand, although with due regard to the threat presented by the loose planning policies which have prevailed for this form of development in recent years;

Multi-let and management intensive properties will be recognised as frequently providing greater opportunities for maximising investment performance compared with single-let secure investments. There will, however, continue to be a need for both in a balanced portfolio;

Indirect investment vehicles, e.g. the various property unit trusts available to pension funds, are likely to see a substantial inflow of new money, particularly from smaller funds who are not in a position to assemble, or manage, a directly-owned property investment portfolio of sufficient size to provide appropriate balance;

Shorter leases, i.e. for terms of down to 15 or 20 years and with break clauses at, typically, the 10th year of a 20 or 25-year lease have now become commonplace and no longer meet major resistance from institutions, provided that an appropriate period of notice and rental penalty is incorporated. The supply/demand situation in the office market is, in any event, likely to ensure that fewer concessions will be available to tenants during the remainder of the current cycle;

The increasing - and, in my view, inappropriate - focus on short-term performance will increasingly discourage the pursuit of contra-cyclical or innovative investment policies which would otherwise provide the prospect of achieving above average investment performance. In very many cases, the best medium or long-term returns are the result of foresight and/or innovative investment policies which may, for example, involve buying low or non-income assets including development sites, where the "pay off" is achieved over a period of years rather than months.

The fundamentals of property investment point clearly to the fact that over emphasis on short-term performance is generally incompatible with achieving above average returns in the longer term. The current fascination with short-term league tables suggests, however, that this is only infrequently appreciated by investment commentators and pension fund trustees. The year ahead looks like being an exciting period in the investment market but most investment managers seeking to re-balance their portfolios are likely to agree that there will be easier ways of making a living during 1998.

Alan Bradley is chairman of agents Jones Lang Wootton.