The exceptional performance is due to strong demand for property investments from institutional buyers, property companies and private individuals. Demand has been driven by the strong performance of property relative to the equity and bond markets. In the past 12 months, property returns have totaled 17.3% while the stock market generated returns of 10.7%. Huge demand from investors has pushed up commercial property prices, which, in turn, has cut the rental yields on offer to a 13-year low.

Despite the continued strong appetite from overseas investors, the biggest rise in demand this year was from UK pension and life funds, which once again have become net investors in property in 2004. Foreign investment in the UK, according to the report, stood at euro 5.5 billion ($6.7 billion) out of a total of euro 31.3 billion ($38.2 billion) in the calendar year to August. Of those foreign investors, Irish investors accounted for the largest share, followed by German funds and Middle Eastern investors.

The likely introduction of REITs has also stimulated the market. The CBRE research found that investors have been accumulating large portfolios of property that could be converted into a real estate fund.