The majority of investors, the report states, are now prepared to accept low initial yields in anticipation of rental recovery.

Despite the low- yield environment, evidence of rental growth is likely to underpin performance.

"Ten years ago, an office building in the capital might have yielded 6%, " said Sean O'Brien of CBRE's investment division. "Now the figure is in the region of 3.5% to 4%.

"Office rents in Dublin have only started to grow in the last 12 months . . . before that they'd been flat for a five-year period, " he said. "Investors are willing to sacrifice a percentage of yield in the expectation that rents are going to grow and there is very strong evidence that is indeed what's happening."

In the coming months it's expected that a combination of inflationary pressures and interest-rate hikes will moderate activity and price inflation in some sectors of the property market. However, as long as interest rates remain relatively low . . . in historic terms . . . strong investor demand will continue.

The weight of capital being invested in commercial property in the last few months has led to even further yield compression and higher prices being achieved in the Irish market. As a result, property's historical yield advantage over other asset classes . . . shares, or government bonds, for example . . .

has to some extent been eroded. In addition, compared to other asset classes, property continues to provide investors with excellent diversification and stability benefits, the CBRE report claims.

This is demonstrated by the sheer number of significant investment transactions concluded in the Irish market in the first half of 2006, which would suggest that interest rate rises have already been factored into lending costs and do not appear to have dampened demand for property investment opportunities in the country.

Among the major transactions agreed in recent months was the sale and leaseback of the AIB Bankcentre buildings in Ballsbridge for in excess of 377m. The investment element of this transaction will produce an initial yield of 3.6%.

The sale of the Bank of Ireland headquarters on Baggot Street has been agreed in excess of 200m, reflecting an initial yield of just 2.8%, off what is a heavily discounted rent.

Lisle House on Molesworth Street also sold recently for 27m, reflecting a reported initial yield of approximately 2.2% while three units in Airways Industrial Estate sold for in excess of 16m, reflecting an initial yield of 5%.

Outside of Dublin, notable investment transactions include the sale of a 50% interest in Kilkenny Shopping Centre for 60m, which will yield 6% after capital allowances; the sale of the Odeon building in Eyre Square, Galway, for 12m, reflecting an initial yield of 2.19% and the sale of Gardner House on South Mall in Cork for 9.7m, reflecting an initial yield of 3.3%.