Market ReportWhile economic fundamentals remain strong, the property market overall has slowed significantly, with performance during the first half of 2007 nowhere near that for last year. Commercial property remains a good investment, but rents have increased only slowly over the first two quarters.

Lisney's Rental Indices Report highlights the change of pace seen generally across property markets worldwide. Ireland has performed well compared to many eurozone countries with a 7.5 per cent GDP growth rate, according to the report, but this has not stopped the slowdown in the market for commercial property. All sectors of the market have experienced moderate growth, but most of this occurred during the first quarter, the report indicates. On an annual basis, overall rental growth fell from 19.15 per cent in September 2006 to 5.31 per cent in June 2007.

On a quarter-by-quarter basis, growth has slowed from 4.3 per cent in the third quarter of 2006 to 0.05 per cent in the second quarter of this year.

The retail sector has enjoyed continued growth on the back of strong consumer spending, fuelled to a large extent by the encashment of SSIA accounts. Yet this has not translated into growth in the retail property sector, the report suggests.

Increases in the availability of retail space has punctured growth, leaving figures flat for this sector. Rents have flatlined on retail parks and urban settings such as Dublin.

Average Zone A rents in Grafton Street remain at around €9,500 per sq m (€882.55 per sq ft), while Henry Street rents are around €6,250 per sq m (€580.62 per sq ft). Cork has proved something of an exception, with Zone A rents in Patrick Street edging up by 2.5 per cent in each of the last two quarters, to reach levels of around €4,200 per sq m (€390 per sq ft).

The industrial sector has also provided a bit of good news, with an increase in industrial rents of 1.69 per cent in the first half after coming through 12 months of near zero growth during 2006. This sector has been helped by a 14.4 per cent growth in manufacturing activity in the year to July.

A number of new developments have come on stream and, as a result, rents stabilised in the second quarter at around €120 per sq m (€11.15 per sq ft) for units of between 1,857-4,634sq m (20,000-49,880sq ft).

Continued strong job creation in the financial and business sectors have bolstered demand for office space in a market where office availability remains tight, the report indicates. This has seen vacancy rates fall to 10.7 per cent in Dublin overall and 9.3 per cent in the city centre.

In spite of this, headline rents have not moved much in the first half of the year, the report says. Citywest stands as the exception to this picture, with its rents increasing from €226 to €237 per sq m (€21 to €22 per sq ft) in Q1.

While headline rents haven't improved, the net effect on rent for office space appears to be increasing as lease terms have continued to harden in favour of landlords. Fewer inducements are being offered to lease holders.