The current volatility in the equity market may encourage pension funds to increase their holdings in property, according to a new report from Lisney estate agents. The various funds have been reducing their exposure in the Irish property market in recent years, primarily because of the cyclical nature of the office market.

Illiquidity has also proved a problem in the past but in today's buoyant market, there are more buyers than sellers. Lisney says pension funds now hold only 6.5 per cent of their total assets in property investments. The Lisney composite rental index, based on the weighted average of the four individual property sectors, recorded a slight reduction in the rate of growth during the first six months of this year compared with 1996.

The findings are broadly in line with earlier studies by the Irish Property Databank.

Lisney says this appears to indicate a realistic approach from investors and lessees alike. It also suggests that there is little likelihood of the market overheating in the short term. While the Georgian office sector recorded a rental increase of 15.8 per cent over the first six months of the year, the overall rental index reported by Lisney rose by 5.2 per cent. Darragh Harte of the agency says that as more modern office developments come on stream, the institutions will avail of the opportunity to dispose of Georgian and other smaller properties and consolidate their portfolios.

The Georgian and older office investments represent about 15 per cent of all property holdings by the funds but in some cases this is as low as 5 per cent. Looking at the performance of the individual property sectors, Lisney says retail is going through a time of change and redefinition as numerous developments - small, medium and large - come on stream. While recording strong, steady growth, the retail market has been somewhat patchy with traders complaining of poor and erratic weather conditions over the summer months.

These trade patterns may also relate to the ripple effects caused by the new shopping centres. This trend looks set to continue as more developments open, such as the Liffey Valley shopping centre at Quarryvale, in west Dublin, and the market finds a new level.

Lisney says that despite the volume of new office space coming on the market over the past two years, the amount of available accommodation has remained at around or below 4 per cent. Outof-town locations are being increasingly considered, helped in no small way by the improved road network.

Immediate availability has become a priority for prospective tenants who have short start-up times and in this period of high economic growth, tenants are becoming increasingly critical of properties which do not allow for expansion and growth. Lisney reports a steady improvement in the industrial market. Serviced land is in short supply and there is a shortage of available sites. Demand for space is strong with capital values for both new and well-located secondhand space at record levels. The agency says low interest rates and plentiful finance have fuelled demand from owner occupiers.

Rent levels are now comfortably above £6 per square foot and they are set to improve further towards the end of the year.