Dublin has experienced the fastest growth in net effective rents among 21 European office markets over the last year, according to new research from property consultants Savills.

It found that effective office rents in the capital have risen by 39.3 per cent in the past 12 months, as against an average of 5.1 per cent across Europe.

Savills said that the two elements which make up net effective rents - headline rents and rent-free period - had moved in opposite directions, leading to a sharp rise in prices.

According to the report, Dublin was one of only seven markets in which the average rent-free period fell, with Hamburg, London, Dusseldorf and Paris also seeing a significant tightening of the incentives on offer.

However, although net effective rents are rising in the capital Roland O’Connell, director of office agency at Savills in Dublin, stressed that they are recovering from a very low base.

“Effective rents fell by more than 50 per cent during the downturn and, in that context, it is not surprising that we are seeing something of a bounce-back.”

“While increasing commercial rents are welcome insofar as they reflect the underlying strength of the economy, we would not want to see this rate of growth continue in the long term. Rents can account for a significant part of the occupier cost base and they have knock-on implications for Ireland’s competitiveness and its attractiveness as a business location,” he added.

Separate research published by Jones Lang Salle on Monday reveals that €1.7 billion of capital has been invested in Irish real estate this year. The largest transaction was Project Sapphire, which Green REIT purchased earlier this month.

The company said demand for Irish property assets remains strong and as a result it is predicting that total volumes for direct and loan sales will rech €4 billion this year, €600 million ahead of the peak in 2006.