DRIVEN by the strength of the economy, the Irish property market is currently enjoying a buoyant period of growth. The office market reflects this strength with take-up levels reaching unprecedented heights in 1996.

Faced with such exceptional demand, several would-be tenants of third-generation accommodation had to resort to second-generation accommodation. Fuelled by excess demand, quoted rents increased to £18 per square foot from £16 at the end of 1995.

The strength of demand for modern office accommodation will not diminish in the short term. The Economic and Social Research Institute recently forecast that GNP would grow by about 5.5 per cent per annum to the year 2000.

All sectors of employment (excluding agriculture) are projected to show considerable growth. Employment in other market services, which includes most office jobs, is forecast to accelerate in the next three years.

A closer examination of employment projections, through a correlation with square footage requirements per employee, reveals demand by new entrants to the market for approximately 787,000 square feet of office accommodation in 1997.

A further 1.7 million square feet will be needed in the subsequent three years to the year 2000.

This projection is minimal as it does not include the demand by existing tenants upgrading to more modern facilities.

Such additional demand is also likely to be quite high given the age of stock - 45 per cent of the current office stock was built in the 1960s and 1970s.

There was approximately 560,000 square feet of office space available in Dublin at the end of the first quarter of the year - 41 per cent of which was third-generation property.

At present, there are 840,000 square feet of office accommodation under construction, 20 per cent of which is pre-let. In theory, this means that availability should increase by 670,000 square feet.

At face value, this level of accommodation may seem adequate. However, with additional demand requirements as a result of displacement in the market, it is clear the supply will not be sufficient.

Displacement generated 75 per cent of take up in 1996 and 60 per cent in the first quarter of the year. Even if displaced demand was to fall to 50 per cent of total take up, this would suggest a requirement for 1.6 million square feet of office accommodation in 1997.

In contrast, an analysis of space which is either available or due to come to the market reveals a potential supply of 1.3 million square feet in 1997. A continuation of excess demand will put further pressure on rents to increase.

Limited opportunities for development exist in the traditional office market of Dublin 2 and 4. Well located 1970s buildings, however, do offer potential redevelopment opportunities.

Two examples of second-generation buildings which were successfully refurbished to third-generation standards recently are 76 Lower Baggot Street and St Martin's House in Waterloo Road.

Suburban development is another viable solution to the problem of insufficient supply. The increased number of high-tech companies entering the market has blurred the division between the office and industrial markets. High office content has become an essential feature of any modern industrial unit.

The provision of office accommodation on industrially-zoned land would facilitate an increase in the supply of office accommodation and dampen the acceleration in rental levels.

The issue of insufficient supply in the office market is likely to worsen if it is not addressed. Current forecasts suggest a very positive outlook for the economy, the most tangible evidence of which will lie in a further increase in employment.

The ESRI is currently projecting an increase in total employment of about 39,000 jobs per annum to 2003. The bulk of this increase is forecast to be in the market services sector.

Historically, the attractions of Dublin as a financial and commercial centre has meant that 30 per cent of all new jobs and 39 per cent of all office based jobs have been located in Dublin city and county.

The considerable amenities available in the city suggest that Dublin 2 and 4 are likely to remain the favoured location for offices. Redevelopment in these areas of buildings dating from the 1970s would help ease the demand for modern accommodation. Accelerating rents in prime locations will focus attention on suburban accommodation as a viable alternative.

At present, there are 3,000 acres of industrially-zoned land in Dublin county, which is equivalent to almost twice the current industrial market size. The development of office parks on some of this land would help control the spiralling rents in the office market.

The competitiveness of Dublin office rental levels, against its European counterparts, remains one of the fundamental attractions of the Dublin market. The provision of additional accommodation is the essential ingredient in the stabilisation of rents. Whether this additional accommodation comes in the form of rejuvenated second-generation buildings or office parks on industrially-zoned land, it is essential that supply is augmented to meet the demand for modern office accommodation.