Recent high returns to commercial property come as little surprise given the elementary connection between the economy and the property market. End-user demand has never been stronger as the economy powers along, with both overseas and indigenous occupiers expanding into industrial and office space. Overall returns to property measured 31.8 per cent per annum on the JLW Index at June, 1998. This very high level of return makes for dramatic headlines, but disguises the steadier performance over longer periods.

The table (right) shows average returns over the long term, and the average volatility during the same periods. It is clear that although equities out-performed property in each of these longer timescales, it did so with a significantly higher risk profile.

Looking back over the cycles of the property market, the pattern of peaks and dips is a familiar one - the present strong market is not without precedent. What is somewhat unusual is the background of consistently low inflation and the comparatively steady rise in overall returns since 1992.

How long can this go on? Most of the factors driving the strong market - strong economic growth, falling interest rates, very low levels of vacancy and high levels of demand - have been with us before. But there are three other elements which did not feature in previous strong markets.

The first is the structural demographic change which is increasing the workforce and the demand for space. The second is the consistently low inflation and interest rate environment. Third, there is a very measured approach to speculative development, relative to past experience. The first two factors look set to continue for the next couple of years, insofar as economists are able to predict.

Supply will wax and wane over the coming three years, but there is no sign of a flood of new space in any of the markets. This would suggest that all of the ingredients are there for steady growth to continue. One test of this theory is to look at the UK market, which is at a different stage of the cycle. Economic growth is expected to slow to around 2 per cent per annum and although interest rates are expected to fall from their present high levels (7.5 per cent), high taxes will counteract some of the benefit of this.

The UK business and banking community are unhappy with the UK's unwillingness to enter EMU, and the corporate mood is somewhat sombre compared to the Irish outlook.

UK rental growth is regarded as having topped out, and the pressure on yields is upwards as growth expectations are reduced. UK property returns are now around 15 per cent per annum with an average of around 11 per cent for the next few years.

The bottom line for performance in property terms is the end user. Demand for space in the Irish market is strong and shows no sign of abating. As long as the supply pipeline feeds space on to the market in the present restrained manner, there is reason to expect continued good returns.

Margaret Fleming is Associate Partner in Jones Lang Wootton, specialising in investment and consultancy