Although there has been a slowdown in lending to the commercial property sector, the market is still growing, according to lending institutions.

While banks are now more cautious, Mr Peter Butler, Anglo Irish Bank's head of banking in Ireland, feels the market is now more healthy. "The frothiness is gone and that is no bad thing," he says.

Developers of office buildings in the Dublin suburbs who have not managed to pre-let them are already finding it more difficult to get funding. One banker who did not want to be named said "spec offices on the M50 wouldn't be the top of the hit parade . . . there is a dawning realisation that there could easily be a lot of space out there".

Mr Butler agrees. He says Anglo Irish Bank is concerned about the huge amount of office space in the pipeline and is "very careful" about office development in Dublin city.

Mr Jerry Burke, head of property at Bank of Ireland's corporate banking section, sees moderating growth in rates of lending to commercial property. "There has been a sea change in the market. There was huge tenant demand in the previous four to five years that has been cut significantly." Mr Brian Healy, manager of commercial lending at EBS, also detects a slowdown - though he says warehousing and industrial units are "still selling well", particularly the smaller buildings and those for owner-occupiers. This sector is still expanding, primarily because the demand for 5,000 and 10,000 sq ft units is being driven by the smaller customers.

Lending institutions, however, have expressed some concern about the impact of foot-and-mouth disease. Holiday homes and hotels are facing a difficult year, according to Mr Healy. While Mr Butler is "positive enough" about the retail sector, he says foot-and-mouth will "soften" the markets in hotels and public houses.

With the slowdown in the domestic market, Irish investors are continuing to look abroad, particularly to the UK, for investment opportunities, according to Liam Lenehan of Hamilton Osborne King. He says many business people have built up considerable capital over the last few years, and even though there have been signs of an economic slowdown they still needed to find a home for their capital.

The volatility of the stock markets underlined the stable nature of property as a long-term investment. Like others, Irish investors have been interested in secure commercial property investments, mainly in the UK's south-east and in some European capitals.

Mr Healy agrees that investors normally active in the Republic have now moved to the UK. One reason for this is that investors foresee greater capital appreciation in that market. Banks are interested in financing pre-let buildings with good covenants and are prepared to lend up to 80 per cent of purchase price.

MR HEALY says investors can still buy high yields that service the loan interest. In the domestic market, he notes that the yield could be 5 per cent, but the loan rate would be 6 per cent. In contrast, investment properties in the UK could yield 7 per cent (Anglo Irish Bank says it could be 8 per cent), with a loan rate of 7 per cent.

The gearing allows the loan to be serviced and part of the capital to be repaid. Taking on the more optimistic 8 per cent - say a £5 million sterling investment - the annual loan interest would be £280,000. The rent would be £400,000. This would allow the loan interest to be paid, and part of the capital to be repaid.

Commercial property in Ireland is nevertheless seen as a healthy sector by the lending institutions. They point to funds built up by developers over the years, and so generally have no difficulty in putting up the 25 per cent of equity usually required.

Latest figures show advances to real estate activities of £6.1 billion (€7.75bn) at the end of December, 2000, up considerably on the £5.7 billion (€7.24bn) three months earlier. That represented a growth rate of 7 per cent. It also contrasted with the £4.5 billion (€5.7bn) lent to the manufacturing sector by last December.

When the figures are next produced by the Central Bank - in three months' time - they are likely to show further growth of lending to real estate. However, based on the lending institutions' view of the market, the growth rate will be lower.