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Distressed Commercial Property Markets Easing Globally

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Commercial Real Estate Investment  Distressed Assets  Distressed Commercial Property 

By - Wednesday 11 August 2010

The majority of global property markets are experiencing an easing in growth of distressed commercial real estate.

Following a report of the worldwide market by the Royal Institution of Chartered Surveyors (RICS) it has been claimed that the situation is calming in 85 per cent of the countries surveyed. In addition, it would appear that a number of emerging markets around the globe are now seeing much less strain than their established counterparts.

According to RICS, in the second quarter of the year some 13 out of the 25 countries surveyed reported an increase in distressed sales, which is an improvement on the 17 countries reporting rises three months previously. Among the markets where the biggest rises in distressed sales were seen were Portugal, the US and the Republic of Ireland.

However, the pace of this growth was moderate across the majority of markets with only three countries, Portugal, Spain and Germany, reporting that distress in the market is increasing at a faster pace than last quarter. Meanwhile, eight countries did report a decline in the number of distressed properties coming to market compared to three months earlier.

The pace of decline was greatest in Brazil, Russia, India and Hong Kong, while surveyors in Japan indicated a modest turnaround.

Other countries showing marginal declines were Canada, Australia and China.

Looking to the future, a number of real estate professionals are confident that the amount of distressed property coming onto the market in the next quarter will continue to rise.

Respondents in Portugal and the Republic of Ireland expect to see the fastest growth in activity followed by the US, Spain and Scandinavia. However, there is positive news from Brazil, China, Hong Kong, Canada and India where agents expect distressed sales to continue to decline.

Increased Listings Predicted

"Growth in distressed listings eased back globally outside of Portugal, Spain and Germany in the second quarter," said Oliver Gilmartin, RICS senior economist. "That said, distressed listings are still rising albeit at a slower pace in much of the rest of Europe and the US. A clear divide appears to be opening up between these markets and the rest of the world."

Looking ahead he believes that despite the "supposedly successful" European bank stress tests and worries over the health of the European banking system will continue to linger, propelling banks to manage down their problem loan books. "Indeed, changing international regulations are likely to start raising the cost of capital of holding commercial property on bank's balance sheets, which could be the trigger for increased listings in the coming year," Mr Gilmartin added.

Improving Market Conditions

Elsewhere, leading commercial property agent CB Richard Ellis (CBRE) has claimed that the global commercial property recovery is showing strong growth. Speaking to the Financial Times, the firm's chief executive Brett White said that almost all the global property markets are experiencing growth. Mr White was talking in the wake of news that CBRE has seen the strongest growth in revenue and earnings since 2007.

"We are a good proxy for the global property market," he explained. "Virtually all global economies are in early stages of recovery and others such as China are in full-blown expansion phase, and [so] the majority of property markets are either flat or slightly improved."

The real estate expert added that many occupiers were now more optimistic on the mid-to-long-term horizon, with a more normal market for lease terms.

He pointed to the fact that rents were rising in 48 of the 55 markets tracked by CBRE in Europe, while yields on property transactions had begun to narrow again.

Emerging Economies

However, it may not necessarily be Europe which is leading the way in terms of generating a good return on investment.

It has been suggested that commercial real estate in emerging economies is outperforming that of more established markets.

The latest RICS Global Commercial Property Survey for the second quarter of 2010 has found that countries located in South American, Asia and Eastern Europe are outperforming eurozone destinations.

Demand for office space outside of the UK and eurozone has been increasing on a global scale, with RICS claiming that tough fiscal measures enacted by various European governments are to blame for the stuttering recovery.

According to the body, the need for certain countries to reduce national debt is having a profound impact on the appetite of businesses to take up new space.ADNFCR-3415-ID-800019525-ADNFCR

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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.

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