WHILE the residential property market has been enjoying. a period of strong growth in general values over the past few years, the rate of growth seems to have accelerated recently, particularly at the upper bend of the market, with spectacular prices being paid for some properties. The pace of the rises is causing great concern in the Central Bank and other quarters.

Against this background it is perhaps surprising that the market for commercial and business property has been so orderly - indeed, some would say mundane.

The Irish Property Index produced by the Society of Chartered Surveyors and the Investment Property Databank - tracks the value of over £750 million worth of office, retail and industrial investment property. It confirms that the total average return on Irish property, for the 12 months to the end of March, 1996, was 13.2 per cent - up slightly on the 12.9 per cent recorded for the corresponding period to the end of December, 1995. This, however, is a total return, which includes both capital and income. The actual growth in capital for the year to March, 1996, was just 4.5 per cent - a modest level by any standards, particularly when many consider that property is enjoying a boom.

The fact is that commercial property values are still considerably lower than they were at the beginning of the decade. The growth in values which has taken place since the second half of 1993 has still not recovered the losses incurred during the previous few years.

So is it inevitable that the buoyant state of the residential market will spill over into the commercial property market? The answer is that it is very difficult to say.

Certainly, the fundamental factors "driving" both markets would be broadly the same; that is, economic growth and interest rates. There are major differences, however, between supply and demand in residential and commercial property. Indeed, even within the commercial market, the office, retail and industrial sectors are quite distinct from one another.

The market for office space in Dublin, for example, has witnessed a sustained period of high demand, with over 1.1 million square feet let or sold during 1995, and a further 500,000 square feet taken up in the first quarter of 1996. Yet it is only in the past few months the market has seen a return to new development - virtually all of the space taken over the past few years comprised the accumulated overhang from the last building boom between 1990 and 1992.

While new development has been slower to take off than in previous market cycles, over 500,000 square feet are now under construction and due for completion over the next 12 months. Interestingly, about 60 per cent of this new space has already been pre-let or sold to occupiers - an indication that developers (and their financiers) are taking a more prudent view than in previous cycles.

Meanwhile, the demand for office space remains strong, particularly from the various overseas companies attracted to Ireland by the IDA in sectors such as software, financial services, tele-marketing and administration. The growing importance of this sector is underlined by the fact that 70 per cent of office space currently under construction is aimed at the sector.

The retail market is dominated at present by the imminent opening of major new shopping schemes - both out-of-town in Blanchardstown and the Square, in Tallaght; and in the city centre at Jervis Street, Arnotts at Henry Street, and Marks & Spencer on Grafton Street. Other schemes in the pipeline include the Bloomfield centre in Dun Laoghaire, Quarryvale, Dundrum, Swords. . . and so the list continues.

While a certain scale of new retail development is reasonable in the context of general economic growth, the concern is that the current volume of development - both planned, and under construction - is excessive. This new supply will undoubtedly have an impact on many existing retail locations. The implications of gross retail over-development go far beyond the narrow confines of the property market, given the broader social role that established high streets and centres play in the city and the suburbs.

This is one of the most important problems likely to confront the planning authorities over the next few years - and one which cannot be satisfactorily tackled without proper co-ordination between the city and the three county planning authorities.

The industrial market is also experiencing a period of growth in values and development activity - industrial occupiers for the most part are only interested in buying property, rather than renting it. This is not surprising, given that interest rates are lower than industrial property yields.

All in all, the prospect for the commercial property market remains positive for the time being. At present, the only sector of the market with a potential oversupply problem is the retail sector; and even here, the key challenge for investors will be to identify and buy into the "winning" locations. No doubt the fact that Graft on Street is viewed as virtually immune to the impending oversupply of retail space - likely to affect other locations - is one reason why it remains in favour with investors.

The reasonably tight supply of office and industrial space should underpin growth in values in these sectors and the significant rise in construction costs will add further to this growth.

While a total return of 13 or 14 per cent is probably unsustainable in the long term, especially if inflation remains around 2 percent per annum, it is quite likely that Irish property could maintain this level of performance for a few years yet.