The economic success enjoyed by Ireland over the last few years has created its own problems. Chief among these is the management of our economy, which is operating at close to full capacity.

Labour, once a plentiful resource, has become scarce; inflation is rising and so too are interest rates; an infrastructural deficit exists. Ireland could lose its competitiveness and future inward investment. Creative and innovative solutions are needed and it will take strong leadership to implement them.

Property developers are facing new challenges. The negotiation with the main contractor for example, is no longer just about costs; more and more the focus is on the contractor's ability to complete the development within a set time-frame. In the office market, in particular, developers are competing for the same tenants and the winner will be the developer who satisfies the tenant that they can deliver the building on time. To achieve this, the developer sometimes agrees to ambitious building programmes and then competes for scarce labour resources. Consequently costs increase, as does the possibility of overtrading in the construction industry.

Tenants are also competing for the limited new space available to meet their business needs. Price (rent), while obviously still important, is not their primary consideration. More attention is being paid to location, access to labour resources, facilities for staff and, of course, the handover date.

So what do the banks make of all of this? It is important to recognise that banks are not the market watchdogs making sure the property market doesn't get oversupplied. Banks watch markets to the extent that what happens in the market affects the quality of their loan book. If they do this properly, it reduces, but doesn't eliminate, the possibility of things going wrong.

The property market has reached heights few could have predicted a few years ago. Banks and developers must question the sustainability of the growth in rents and values.

Yields have fallen in line with longterm interest rates and an expectation of strong rent reviews. But do these yields reflect fair value? I don't believe the spread in yields for prime and secondary covenants and prime and secondary locations are sufficient. A lot of property has been let to startup businesses, particularly businesses in the technology sector. These companies tend to be well capitalised but some are loss-making and may not survive to pay the rent.

Yet their covenants are being sold at yields more appropriate to blue-chip tenants. Investors might be taking comfort from the fact that there would be no difficulty reletting the space if they had to. But this assumes current market conditions remain into the foreseeable future, which may not be a reasonable assumption. And what if there is an economic downturn? Is one likely? Economists differ on this. Some reckon economic cycles are a thing of the past but not all agree. A downturn could be caused by a failure to meet the challenges referred to above or by external factors outside our control.

Bankers and developers would be wise to consider the likelihood, and impact, of a slowdown or downturn in economic activity and take necessary precautions.

Bankers are trained to look at the downside of lending proposals. We are conservative by nature but, more recently, we've had to harden our lending criteria to reflect the changing economic climate.

THE property business, like all others, is made up of people with differing capabilities. The property market, however, has attracted a lot of new players because of the substantial profits that were being made.

Some of these developers have never had to operate in a market that doesn't offer any compensation for problems such as cost overruns and delays.

As the property market tightens banks will want to ensure that their clients have the experience and ability to react to the changing environment and withstand a downturn. Even then developers will have to ensure the time horizons of their projects are as short as possible. Anticipating where the economy and property market will be in 12 months' time is difficult.

Properties that aren't substantially pre-sold or pre-let, or that won't come to the market within this time horizon, will have trouble securing bank funding.

Where loans are being made available, banks have started to harden the conditions, in terms of gearing and recourse, in order to reduce their risk as much as possible.

Of course, there are still some good development opportunities around - there always will be. The smart developers, however, are prepared to give these deals a miss if the upside potential doesn't justify the risks that have to be taken. Banks are doing the same.

Declan Quilligan is an associate director of Anglo Irish Bank