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US Commercial Property Prices 'Near Bottom'

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Distressed Property  RICS  US Commercial Property Investment 

By - Thursday 26 August 2010

Globally commercial real estate appears to be performing strongly. Interest in the area remains strong and in many markets transaction levels are heading back to the level previously seen during its 2007 peak. Much of the focus appears to be surrounded around Europe and emerging destinations, such as Brazil, while prices in the once-booming US market seem to have stalled.

According to the latest index from Moody's, commercial real estate values in the destination are down to nearly half the levels seen at the height of the property boom. The statistics show that nationally prices are 9.1 per cent lower in June when compared to the same time last year. Rates declined by 0.9 per cent during the first half of 2010 and while prices remain 4.2 per cent above the current recession low of October, they are down 41.4 per cent off the peak of October 2007.

However, the Moody's index does show that transaction levels have risen.

Something that the company's managing director, Nick Levidy, believes could indicate that prices have now fallen enough to meet demand.

Prices Close to Bottom

If transactions continue to proliferate, it may be a sign that buyers and sellers are reaching an agreement on market pricing.

"If this is in fact occurring, we would expect transaction volumes to continue a steady rise and price volatility to start to ebb in the months to come," Moody's researchers wrote in the report. "Several more months of data is needed before we can draw any firm conclusions on this point."

The firm says that it expects prices to remain "choppy" for some time as the market and broader economy begins to recover from the recession. With the US still faced with sovereign debt problems, high unemployment and concern still lingering about the possibility of a double-dip recession. "The increase in dollar volume in each of the past two months, taken together with this month's 43 per cent increase in the number of repeat sale transactions, may be an early indication that buyers and sellers are starting to agree on market-clearing prices," Mr Levidy added.

"If this is in fact occurring, we would expect transaction volumes to rise steadily and price volatility to ebb in the months to come."

What about the future for commercial real estate on a global scale?

Distressed Commercial Property Rising?

In a trend which is expected to be repeated across the world's markets, the Daily Telegraph reported that some GBP 50 billion of distressed commercial property was about to hit the market in the UK alone. The proliferation of distressed real estate comes as banks looked to offload bad debt from their books.

It comes as changes to international regulations are implemented, with many likely to raise the cost for banks of holding commercial property. For large scale property investors the news could be welcomed. Those with continued access to finance will be provided with ample buying opportunity. Eventually, demand should catch up with limited supply and those in a position to invest through the downturn will be sitting pretty.

Distressed Commercial Property Easing?

However, a recent report by the Royal Institution of Chartered Surveyors (RICS) would suggest that the number of distressed commercial properties entering the global markets is in fact calming.

It claims that the situation is easing in 85 per cent of the countries it surveys. 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.

In fact, eight countries reported 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.

"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."ADNFCR-3415-ID-800037797-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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