"The market may be about to return to traditional dynamics with rental growth forecasted to come through during the year and general economic growth providing additional security," says Richard Batten, the firm's investment partner. While much of the demand in 2004 was driven by non-property factors like the performance of equities, there is now evidence of a return to property fundamentals.

Peter Richards, national head of office agency at King Sturge, believes prospects are good for rental growth. "The positive 'perception shift' of improving market conditions has turned the market from an amber light to green for go," he says.

He adds that the past 12 months have seen an increase in take-up and enquiries, but it was from a low base. Demand is expected to increase slowly in the South East but there could be a shortage of grade A space in regional centers because of a lack of significant development pipelines.

The occupational market for industrial space is also expected to improve. August last year saw the first fall in industrial floor space availability since December 1999.

The retail sector is expected to remain tough though, because of planning constraints. Developers have been buying more secondary and tertiary retail parks in a bid to get around this. King Sturge expects food-store operators and other large space users to enter the retail-park market, buying existing schemes and other property in fringe town-center locations for medium- to long-term redevelopment.

But Dr Angus McIntosh, the firm's head of research, adds a note of caution when he identified a number of risks to the property market. They include the US budget and trade deficits, UK consumer debt, increasing government taxation, falling house prices and high unemployment and raw material costs.