Irish property funds struggled in the first quarter of 2008, in a further sign that the Irish property market is starting to come under significant pressure.

Institutional and pension funds produced a negative total return for the first time in six years, as funds started to experience redemptions. Funds worth €4.5bn (£3.6bn) produced an average total return for the first quarter of 2008 of -5.6%, according to investment consultant Mercer. It is the first time the sector has produced a negative return since the first quarter of 2002. Mercer said the performance was affected by the fact that two funds had changed from higher-offer price to lower-bid price, which caused them to produce negative returns.

The news comes on the back of bearish research on the Irish retail and office sectors and worries in the banking sector about Irish lenders, which are heavily exposed to Irish and UK commercial property.

Much of Ireland’s private wealth is tied up in the property market after an extended boom that began in the mid-1990s, meaning a downturn could have a detrimental effect on the country’s consumer economy.