Property consultants CB Richard Ellis has forecast that the bulk of investment activity in the Irish commercial property market is likely to be concentrated in the second half of 2008.

It expects investors to remain "cautious" in the early part of 2008 while they readjust to changed market conditions as a result of the global credit crunch. The agency says sentiment will improve as 2008 progresses, particularly if interest rates fall as expected and there is an improvement in the level of liquidity.

Despite the reduced volume of activity envisaged in the early part of 2008, CBRE is still expecting a repeat of the €2 billion spend on commercial property in Ireland in 2007, though it says the majority of transactions will occur in the latter half of the year as opposed to 2007 when the bulk of activity took place in the first six months.

Prime yields are expected to remain relatively stable over the course of the year, though yields on secondary properties are most likely to come under further pressure as the year progresses, particularly if funding continues to prove challenging and sentiment remains subdued.

Interest in office investments is expected to remain "vibrant" because of the demand for space and the potential for further rental growth. In the retail sector, the scarcity of prime investments in Ireland and the ongoing relative strength of consumer spending "will sustain demand and pricing for these assets".

However, in a separate press release, the agency warned developers to be mindful of the potential for oversupply in the retail sector because of the high level of space opened in the past decade and the fact that consumer spending is expected to slow in 2008.

CBRE says that in line with markets across Europe total returns in Ireland would continue to moderate because the potential for rental growth was now more subdued and yield compression could no longer be relied on to drive total returns. It was difficult to see double digit returns on an ungeared basis being achieved in 2008, according to the agency.

In the UK, which generally accounts for more than 50 per cent of overseas investment activity by Irish investors, values had already softened considerably to a point where "value appears to be resurfacing relative to the early part of 2007".

Marie Hunt, director of research at CBRE, says that most investors are adopting a wait-and-see approach. "We believe that, as interest rates decline and prices ultimately stabilise, good buying opportunities will present themselves and investor appetite will reignite, although this may not occur until the latter half of 2008."

The report cautions that the availability and cost of finance is going to dictate the pace of spending activity and the speed at which investors switch back into a buying mode. In any case it was likely that greater equity input would be required in most transactions this year on the basis that loan-to-value ratios had eased and lending margins had increased considerably.

CBRE also forecast that a key trend likely to emerge in 2008 was that more Irish capital would be directed at established property markets in western Europe, particularly in cities in France, Germany, Belgium and the Netherlands.