The Belfast office market is finally showing signs of an upturn after more than a decade of rentals standing still or even falling. An office building recently completed by the Dublin group Finbrook Investments, on the banks of the Lagan near Central Station in Belfast, has been pre-let at a rent of £10.75 sterling per sq ft by agents Lambert Smith Hampton.

While such a level might seem trivial in Dublin, where office rental rates are roughly twice those in Belfast, the letting to Abbey National has prompted speculation that the city's office market is, after a decade of almost no development, about to enter a period of expansion.

Keith Shiells, chief executive of Lambert Smith Hampton, said "Obviously Dublin is miles ahead in rental levels but there have been a number of deals recently that indicate the market is beginning to show signs of dramatic growth.

"There has been a traditional reliance on Government lettings and it was either a feast or a famine here. But we are now seeing, for the first time, speculative building, albeit in a small way, and encouraging interest from UK companies in Belfast particularly as a centre for back-office or telemarketing."

He pointed out that Belfast rentals reached £10 a sq ft at the end of the 1980s and have stood at that level since, actually sinking at one stage to £8.50. Yields in Belfast are reckoned to be one to two per cent better than in Dublin.

Hamilton Osborne King and joint agents McCombe Pierce and Partners successfully sold on 21 Linenhall Street recently after achieving a single letting to Church and General Insurance. HOK are not revealing how much the local investor paid for the 24,792 sq ft building but confirm that the yield was in the region of 7.3 per cent.

HOK have also achieved a single letting of the 52,456 sq ft Beacon House office building which is due for completion on a site at Clarendon Dock on the Lagan in the middle of next year. The Prudential has taken the building at a rent of £10.25 a sq ft.

The Linenhall Street building, just behind Belfast City Hall, had been refurbished to a very high spec by the London-based developers, Anglia and General, and had been on the market for almost two years.

The slowness in the local market is pointed up by the fact that the Linenhall building had accounted for almost half the available first class office accommodation in the city. Some agents suggest there is now a need for up to 250,000 sq ft of high spec office space in the city.

Local developers have carried out relatively little speculative development, mainly, they say, because banks are not prepared to provide finance unless they have pre-lettings in place.

The lack of good quality office accommodation has resulted in the North losing job-creating opportunities as multinationals seeking to set up back-office operations have been attracted to other cities where suitable office space is available. Earlier this year it was reported that eight foreign investment projects had been lost to the North because there was no adequate office space in Belfast.

Another problem for tenants arises from the insistence of banks on the standard UK 25-year covenant with five-yearly upward reviews. Many of the new computer-based back-office operations are not prepared to sign more than 10-year lease deals.

The latest retail market report by the Valuation and Lands Agency (VLA) examined the developments in the retail market since the brief boom in 19951996, after the first ceasefire, when a number of prime zone "A" rentals surpassed rental levels in Dublin's Grafton Street and Henry Street.

In the past year the rental levels in Belfast city centre have settled, although the VLA says there are "many encouraging signs and the market continues to show impressive strength".

The lack of spectacular rental levels and premiums is more likely to do with the shortage of prime pitches in the confined primary shopping streets of Donegall Place and Castle Lane than with any uncertainties about trading in the city centre, the VLA says.

It said "During the past year no new rental records were set but this was mainly because of lack of supply in the best location, Donegall Place. By contrast, some streets which were unfashionable up until very recently have seen big increases in rents.

"The recent history of demand continuing to outstrip supply has fed through to the retail property investment market where yields have been forced downwards. The consensus among the leading estate agents is that an initial yield of five per cent would be likely if a prime property were brought to the market at the present time.

"As it is, the last year was probably the most active with a number of large transactions. A notable feature of these deals is the increasing tendency for purchasers from the south of Ireland to look at Belfast, where retail property in particular seems to offer better value for money than Dublin."

The VLA records that during the past year the traditional north-south shopping axis along Royal Avenue and Donegall Place has been supplemented by the emergence of an eastern axis into what were the secondary streets around Ann Street. The VLA says this "east axis" is likely to continue to develop successfully with the increased pedestrian flows from the city centre to the major office development in Ewart's Lanyon Place on the banks of the Lagan.

The decision by Marks & Spencer to open an £8 million extension on their Donegall Place store late last year, in the face of the huge out-of-town retail developments, has further enhanced confidence in the city centre.

Deals completed in the emerging secondary streets, the VLA says "indicate continuing expansion of the best second-rank locations and this is the key theme of 1997 rather than any record rent achievements."

The VLA says that the confidence in the city centre retail market has fed through to the investment market, partly as a result of British Budget changes.

The report points to the sale of the Donegall Arcade for £8.5 million representing an initial yield of 8 per cent. Another sale during the year was 12-16 Castle Lane which sold for £3.9 million, producing an initial yield of just over six per cent.

The VLA said "Some agents have expressed the view that the market may be in danger of becoming overheated, with unrealistic rental growth needed to justify the prices being paid. Such a situation has almost arrived in Dublin, but in Belfast the deals completed during the past year indicate that investors are still able to obtain value for money."