Ireland's continuing economic renaissance has made 1998 a record year for the commercial property market. The boom is set to continue for at least another year or two, despite the recent volatility in world stock markets, the serious economic problems in the Far East and the slowdown in the UK.

Overall returns for 1998 will exceed 35 per cent, virtually the same as the bumper year of 1978. Although equities have fared better than property in the past decade, economists suggests that they have done so with higher inherent risks.

Judging by some of the prices paid this year, it seems that people have forgotten that property is a cyclical business. It has its highs and its lows - and booms are generally followed by busts. This has been the longest sustained boom in living memory, starting as it did in 1993. The returns have reached almost staggering proportions since then, against the background of a low inflation rate, which ranged between 0.9 and 2.8 per cent.

In 1993, overall property returns were 7 per cent but by the following year, they had more than doubled to 15.6 per cent. They slipped slightly in 1995 but were still a very respectable 12.9 per cent. The upwards spiral has continued since then, hitting 19 per cent in 1996, 25.3 per cent in 1997 and at least 35 per cent this year, according to the Investment Property Databank.

Unlike previous booms, the present one is being driven by tenant requirements. Enduser demand has never been stronger and this is expected to continue as long as the US computer industry expands. The recent uncertainties on the stock markets have made property investment look like a better bet, both for institutions and private investors.

The other factors fuelling the strong property market - high economic growth, falling interest rates, historically low vacancy rates coupled with heavy tenant demand - look like continuing indefinitely. If this turns out to be the case, then the current property boom will not alone be the longest running in Ireland but also in Europe.

One of the main reasons for the high returns of the past two years has been the decision by developers to do what they should have been doing all along - matching supply with demand. Only five years ago, the office vacancy rate in Dublin stood at 11 per cent, equating to over 1.5 million sq ft of empty space. Today, the vacancy rate is no more than 2 per cent, or about 350,000 sq ft.

Even with a number of international companies in the market for substantial space, there has been no rush to embark on a spate of speculative developments. The developers and the lending institutions want tenants to make firm rental commitments before construction starts. There are, of course, a few exceptions, such as Roy Strudwick, who is building the two final blocks at The Sweepstakes, in Ballsbridge, and Ken Rohan, who has finally moved ahead with the Grand Canal Plaza at Grand Canal Street, and Hardwicke, which can afford to risk some of its huge profits from the IFSC on a new office development at Adelaide Road. Neither developer is taking much of a chance because each has apparently either agreed terms or are in serious discussions with high-profile tenants.

The risk at The Sweepstakes has also been considerably reduced because of the decision by the Telecom Eireann Pension Fund to forward-finance the first of the blocks, which is to be let to Goodbody stockbrokers at £22 per sq ft.

Mr Rohan can also rely on institutional support if he needs it, but with several big names on the lookout for space, including Ocean (the new ESB/ British Telecom telecommunications company), he should have little difficulty in filling the 147,000 sq ft of new space on the former Irish Meat Packers site.

The giant pension fund IPFPUT was probably the first to pre-fund a third-generation office block when they acquired the Coopers and Lybrand building at George's Quay. Several other funds have since done the same to upgrade their property portfolio and there are more in the wings looking for a similar opportunity.

With more than 5 million sq ft of office schemes currently going through the planning process - the vast majority of it either in the suburbs or close to the M50, - the institutional investors may not have to wait long before being allowed to put their money into the office sector.

Their enthusiasm for buying into Grafton Street shows no signs of waning, as was proved last month when IPFPUT acquired the Nine West retail building for £3.6 million. The net initial yield - a modest 3.75 per cent - did not set a new benchmark for the simple reason that two other buildings that showed lower returns were sold to the tenants.

Institutions generally avail of property booms to off-load some of their older investment stock. They aim to do this just before the market has peaked. Judging that this was near, IPFPUT sold Dun Laoghaire Shopping Centre for £20 million and looks set to get another £14 million from the sale of Dundrum Shopping Centre. Bank of Ireland Asset Management also recently decided to capitalise on the strong investment market by putting 16 shops on the market in Tallaght and another seven at Nutgrove Shopping Centre. The bank had been hoping to sell the Tallaght shops at yields of around 5 per cent, but with no one sure what effect the newly opened Liffey Valley Shopping Centre will have on The Square, only about half the Tallaght shops sold at tender. The bank is expected to have better luck with the Nutgrove retail units.

Even Irish Life opted to reduce its stake in its largest property holding, the ILAC Centre, by selling 30 per cent of its interests to the ESB Pension Fund for £30 million. Most of the money is now to be spent on redeveloping and enlarging the 17-year-old centre.

British Land decided to put The Swan Centre, in Rathmines, on the market last month, a year later than originally scheduled.

The Doyle hotel group also availed of the strong market to dispose of Rathfarnham Shopping Centre to another consortium of businessmen for £12 million.

Old hands in the property business acknowledge that there has never been so much confidence. Tenant demand is going from strength to strength and money has never been so plentiful and cheap. The only real fear is one of overheating.