Supermarket chains are set to engage in an unprecedented battle for key sites around the country, a new report has predicted. The fight for sites will further underpin strong land prices, according to the report by Hamilton Osborne King (HOK).

It says the outlook for the retail market is very positive. "With the recent rumours regarding Sainsbury's entrance in to the Irish market, combined with Tesco's and Safeway's aggressive site acquisition policy and Dunnes Stores' and Superquinn's continued fight to fend off the cross-channel competition, the indications are that 1998 will see an unprecedented battle for suitable sites on a nationwide basis," Mr David Potter HOK associate director says in his company's Spring Property Outlook.

Landbank holders are re-examining their portfolios with a view to capitalising on the strong land prices being paid, according to the report.

The ideal requirements for supermarkets are a minimum of five to eight acres of correctly zoned land.

HOK says the edge of town centres are continuing to perform well, especially at weekends and mid-week evening trading. "This successful trading has seen an increase in demand for representation in these centres with substantial key money being paid for the better-located units in the best centres - particularly Blanchardstown, Stillorgan and Tallaght." In Dublin city centre, it says Grafton Street continues to be the jewel in the crown, with some retailers reporting turnover in excess of £600 per sq ft.

The strong retail returns are reflected in the recent sale of the rack rented lease of 71 Grafton Street for in excess of £400,000, according to Mr Potter.

The report says although there is generally no evidence of rental levels in excess of £200 per square foot for standard units, if the right units were available, rents could exceed this level.

It says Henry Street has continued to perform well, although it is still some way behind Grafton Street. Prime rents for Zone A space in Grafton Street are running at £190 to £200 per sq ft, while in Henry Street they are £165 to £175.

In suburban shopping centres, this falls to £35 to £45 per sq ft, and £25 to £35 in provincial developments.

Recent transactions in Dublin include the sale of the leasehold interest of Dunkin' Donuts in Grafton Street for more than £400,000; the sale of the Anne's Hot Bread shop lease in Stillorgan for £90,000 and a deal whereby Iceland will lease 9,000 sq ft in Thomas Street for £120,000 per annum.

"It is now almost as difficult to gain representation in the prime locations of Galway, Cork and Limerick as on Grafton Street," according to Mr Potter.

"Rental levels on Patrick Street, Cork, have increased considerably and have now broken through the £100 per sq ft (Zone A), with premium values continuing to harden."

On the investment market, HOK says tax-based investment this year will be focused on the extended IFSC area, East Point Business Park, Park West Enterprise Centre and the enterprise areas in Finglas and Gallanstown.

"With interest rates predicted to ease further during the coming year, demand for investment property in all sectors will remain strong," according to HOK director Liam Lenehan.

He says this will result in continued strong competition and consequently further upward pressure on prices. He forecasts that upward pressure on prices will also come from continued growth in occupier demand and the resulting inevitable increases in rental value.

HOK says good news for investors is expected to come from a loosening in the supply side, due to the recently announced reduction in capital gains tax from 40 per cent to 20 per cent. "This can be expected to encourage an increasing volume of property sales," according to the report. However, it warns that in the light of this potential supply source, demand will continue to outstrip supply.

This will leave many private investors looking to the UK to satisfy their requirements, while institutions will continue to look at pre-funding opportunities and to the limited number of new developments to fulfil their portfolio requirements, it says.