TO DESCRIBE WHAT IS HAPPENING IN THE commercial property sector - that crucial thermometer of economic health - I resort to a phrase of oriental-style simplicity: "The old has finished, but the new has not yet begun."

The market in Scotland and the rest of the UK is traversing a kind of no-man's land, leaving the old ever further behind, but not yet in sight of the new.

We certainly enjoyed the old while it lasted. Total returns from commercial property in the UK peaked in percentage terms in the high teens in 2006, but the process of yield decompression saw these yields swing with increasing speed into negative territory by 2007. All indications are that 2008 will see returns move even deeper into the red.

Against such a background, what strategies can we pursue as we wait for the cycle to renew itself? Where do opportunities lie? And is it right to expect that the new, whenever it arrives, will be significantly different from the old?

I can see no way that it can avoid being different. Attitudes to value, liquidity, risk, asset management and gearing will all have changed utterly. As a consequence, it is hard to predict with any certainty exactly what the new will feel like.

There is however one characteristic of the market, which I believe will emerge as highly significant.

Through most of the last cycle, and increasingly so in its latter part, the commercial property sector focused on the supply side of the equation. In the sure and certain knowledge that above-trend economic growth in the general economy was stimulating demand for occupation of commercial premises, there was an apparently insatiable demand from the investment community for commercial property stock. The sector, quite understandably, responded by bringing through the supply.

But with virtually every economic commentary pointing towards a slowdown at best, and a recession at worst, a business model predicated on the creation of supply does not seem appropriate.

What this means is that whenever and in whatever shape the new emerges, it is unlikely to be supply-led. The commercial property sector is going to require a far greater understanding of demand and the commercial and economic drivers behind that demand.

I have long held the view that there is a serious contradiction in the commercial property development markets. At first sight it appears that development comes first, followed by jobs and economic activity.

Now there are some areas of the market where that can be the case, especially in areas where most activity is related to regeneration or urban renewal. But for most markets the reality is that the creation of commercial floor space is a response to demand in the economy. Commercial property development is, in reality, further down the economic food chain than we might believe.

So what does this tell us? Well, there is already clear evidence that where occupational demand is resilient, the impact of the credit crunch on the wider development and investment markets is less severe. Aberdeen is a case in point. Occupational demand in a buoyant energy sector is very strong, and it is apparent that the investment markets, while not immune from the wider market influences, look more robust than in other parts of the country. In London, the same can be said of the West End office market, where sustained demand and limited supply are supporting a more positive market outlook.

For whom is this good news?

Well, at face value it should cheer those looking to lease new premises. Developers and landlords will be keen to secure rental income from existing developments or standing stock, so there should be some interesting, competitive deals out there for those looking to move in the short term.

But a word of serious caution is in order. A consequence of the current market is that the flow of new development product will inevitably begin to slow down. What supply there is will be coming through in an environment where development costs are exposed to the same inflationary pressures as many other commodities. So while it may be a tenant's market for a while, the next part of the cycle could well see occupational costs rising in response to the increasing underlying cost of the development process.

And, if we are to be out there looking for demand, where might we begin our search? Well, across the UK, businesses are looking for opportunities to manage operating costs. Here in Scotland we have a significant advantage over many locations, particularly over London and the southeast. A strong and well-established service sector with a good pool of labour is already in place. Add to that offer an extremely cost-competitive package, and you can begin to see why Scotland is well-placed to capture its fair share of occupational demand. Perhaps, if we are bold enough, we may even be able to take more than our fair share.

With the old paradigm already almost a distant memory, the start of the new has been triggered more by external events than internal ones. But the upshot is the same: in commercial property, there are ample opportunities out there, for those best-equipped to take them.

Doug Smith is Scottish chairman of commercial property consultant CB Richard Ellis