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Economic recovery poses new risks to commercial property

The RICS Global Distressed Property Monitor is a quarterly report that reveals trends in 25 commercial property markets across the globe. A distressed property is defined as a property that is under a foreclosure order or is advertised for sale by its mortgagee. Distressed property usually fetches a price that is below its market value. An increased rate of distressed properties entering a country’s market can be seen as a negative economic indicator while a decrease may signal recovery.

The Republic of Ireland, South Africa, the US and Spain have seen the largest reported increases in distressed property listings this quarter. In the Republic of Ireland, net balance scores surged from +4 to +65 while South Africa also saw a dramatic up-tick, with the net balance moving from +15 to +45.

At the other end of the spectrum, agents in Poland, Russia, Canada and Brazil reported the largest decreases in the pace of availability of distressed property. Rather dramatically, the pace at which distressed listings are coming to market eased significantly in Brazil, where the net balance score moderated from -63 in Q4 2010 to -25.

The level of distressed property coming to the market in the UK rose this quarter, with agents reporting a net balance score of +24.

Looking ahead to Q2 2011, property professionals continue to remain pessimistic and indicate that more distressed properties will come to market, although at a slower pace.

Notwithstanding this, there are downside risks; if inflationary pressures persist, the Bank of England could be forced into a rate hike sooner rather than later, adding more pressure to the distressed sphere. In addition, the pace of investor interest continues to wane creating a significant over supply of distressed property in this country. London, however, continues to buck this national trend and maintain a strong commercial property market.

RICS Chief Economist Simon Rubinsohn said: "As the global economy continues to strengthen, central banks must begin to address the spectre of rising inflation; a threat which is compounded in some markets by the continuing European sovereign debt crisis. As a result, many central banks have either already tightened, or are thinking of tightening monetary policy; a step which brings new challenges for the commercial real estate market. Consequently, the distressed property forecast remains overcast.” 

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