The Dublin office market should witness a take-up of over 185,000 square metres again this year on the back of strong levels of demand from domestic and overseas occupiers. As a result of the strength of demand for office accommodation, prime rents in core city and docklands locations may well exceed 700 per square metre in 2007, analysts say.

Irish investors spent over 11bn on commercial property investments last year and some observers expect this record level of spending to be exceeded in 2007.

The development land market is likely to become more diverse, with some lending institutions becoming cautious on more opportunistic development opportunities.

Strengthening competition in the retail market means thorough demographic analysis is now essential to justify retail developments, particularly outside the capital.

The market for hotels and pubs is likely to remain strong, industry sources predict. Recent changes in relation to VAT for conferencerelated accommodation should boost the demand for hotel accommodation in 2007.

According to Marie Hunt, director of research at CB Richard Ellis: "the prospects for the commercial property market in 2007 look very promising, although most people accept that the record levels of returns achieved in recent years are unlikely to be replicated.

"In the absence of significant yield contraction, the primary driver of returns going forward will be rental growth. Investors who want to generate above-average returns from commercial property, at home or overseas, will have to adopt more pro-active strategies and focus on asset management and redevelopment".

Hunt believes that in the coming year the office market will once again be the bestperforming sector of the Irish property market .

"We are aware of eight enquiries from occupiers requiring at least 9,290 square metres of office space in the central business district and we believe it is highly probable that another 185,000 square metres of accommodation will be taken up in Dublin this year. The strength of occupier demand for prime office accommodation in the capital will drive considerable pre-letting activity and with vacancy rates continuing to decline, particularly in Dublin city centre, we expect that prime rents will continue to edge upwards.

"In fact, it is quite likely that rents in excess of 700 per square metre will be achieved on some lettings in prime buildings in Dublin in 2007. We also expect to see capital values on prime properties increasing slightly during 2007 to approximately 15,000 per square metre."

In the industrial sector, there is strong demand now for good industrial properties and sites within close proximity of the M50, along the M1 and N2 corridors and on the N7 motorway adjoining the route of the new outer relief road in Dublin. Locations outlying the M50 including Ashbourne, Newbridge, Naas and Kilcoole continue to thrive.

"The interest rate hikes expected this year will probably mean growth in capital values will be in the 5% to 10% bracket, " says Gavin Butler of Savills Hamilton Osborne King's industrial department. "Land value increases are likely to be in the 10% to 20% region.

"The port tunnel is likely to focus the minds of distribution and haulage companies in the city. Having a depot close to the entrance will dramatically reduce costs for operators.

"Interest rate increases will probably result in more enquiries from potential tenants. The trend though is still to purchase, and that's unlikely to change, " says Butler.

Against a positive economic and demographic climate, it's expected that competition amongst retailers for prime development sites and pitches will remain strong as new entrants continue to seek out opportunities and domestic and overseas retailers continue to expand operations throughout the country.

"Demand for space is set to remain robust, underpinned by the continued strength of the economy, " says Marian Finnegan, chief economist with DTZ Sherry FitzGerald.

"The shopping centre market will witness the redevelopment and refurbishment of a number of older existing centres over the next few years as they come under increasing pressure to compete with the new centres.

Development activity in the retail park market is also expected to remain strong in the medium term with a number of schemes either under construction or in the development pipeline, " she says.

Demand is expected to remain strong for pubs in prime city centre locations, key suburbs and expanding provincial towns. "Already there is well in excess of 35m in sales in the pipeline for the first quarter of the new year which bodes well for the market place, " says Tony Morrisey of Morrisey Auctioneers. "We expect the market to continue building on the success of 2006 with normal levels of activity continuing to take place."

Some analysts anticipate the development of a 'waitand-see' attitude, with many potential vendors reappraising their price expectations.

"Calculating average pub prices is becoming increasingly difficult with results skewed by the exceptional prices being paid for pubs with development potential, " says one propery source.