The property slowdown will continue next year, according to insiders, and many predict tough conditions before the Dublin commercial market bottoms out.

This means banks will continue to maintain a frugal stance on the development business, with the office market particularly downbeat.

With vacancies high, landlords have reduced rents and offered incentives on new space, indicating a loosening in the investment market.

Tenants have secured break-options to withdraw from long-term leases and longer rent-free periods when contracts start. This contrasts with the situation in 2000 when certain landlords were demanding equity in start-up companies as part of their contracts.

Experts say there are opportunities for "affordable" residential developments and small-scale industrial projects, but many believe recovery is not likely at least until the second half of next year. Interest rates will remain at historically low rates. But with the US now formally in recession, the domestic economy is vulnerable to further contraction, diminishing the expectations of property watchers.

On the positive side, many speculators and developers are well-capitalised after the boom - and some may have no need to borrow to fund new projects. For all that, the consensus is that development opportunities in good investment areas such as Dublin 2 and 4 are limited.

Insiders say the market has gained a dose of reality in the past year. "In overall terms we're cautious, but we're by no means pessimistic," said the director of banking at Anglo Irish Bank, Mr Peter Butler.

Bank of Ireland's head of property, Mr Gerry Burke, said that what was "almost a false market for five years" had ended.

Mr Burke has a "broad expectation" of capital appreciation and rental returns in the market of 4-5 per cent in 2002 following a likely outcome of 5 per cent in 2001. Such figures contrast with a 28 per cent return in 2000, at the height of the boom.

"Clearly the market has eased quite significantly on the commercial property side," Mr Burke said. "What has happened was probably quite inevitable, returning to a kind of balanced market. We're a little disappointed, but not surprised."

He believed there were still opportunities in the retail sector. "There's a lot of people stalling, saying wait and see what happens next year," he said.

Similarly, Anglo Irish Bank said 1.5 million sq ft of office property was let this year, down from 2.5 million sq ft in 2000.

Mr Butler said: "If you're talking about the office market we would be very concerned about oversupply, particularly in the suburbs. We won't be doing speculative office developments for the foreseeable future."

Anglo Irish continues to demand pre-let agreements from speculative developers seeking to finance projects outside Dublin 2 and 4. The stance of Bank of Ireland was different. Mr Burke said: "We haven't closed our door and said we can't do non pre-lets at this stage. Offices, other than the well-located, will slow up. There's a lot of supply on the outskirts of the city."

According to Mr Butler, vacancy rates of 7 to 9 per cent in the office market contrast with 5 per cent vacancies in 2000.

DTZ Sherry FitzGerald director Mr Declan O'Reilly said tightening in the market would begin to reverse once investors sensed that it may be about to bottom out. "Everyone wants to buy in at the bottom. I think we're in a difficult enough time and next year will be tough. It's a better time for tenants. For the last five years that hasn't been the case. I don't think there's any doubt that the take-up next year will be down." Still, Mr O'Reilly saw opportunities for investors in small-scale industrial projects because the funding requirements were digestible.

For residential property developments, Mr Butler of Anglo Irish said starter-home projects on the outskirts of Dublin were viable propositions for lenders.

"Well-located starter properties at affordable prices are still worth banking on. Demographics suggest a lot of demand for starter homes and we'd be happy enough to fund them in the £140,000-£150,000 (€177,763 to €190,460) price range. At that level you're selling."

Selling conditions for projects with homes valued in the £200,000 (€253,947) price range were "very tough", Mr Butler said. However, he suggested apartment schemes at that price were attractive in Dublin city centre.