U.S., Europe Lead the Way in Globally Distressed Property Markets

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Sifting through the rhetoric about declining growth rates and "easing" markets, the latest study of distressed commercial property reveals sharp divisions developing in global markets.

In particular, while the United States and western Europe continue to see substantial increase in distressed sales, Brazil, Russia, India and Hong Kong are among the markets showing signs of stabilization in foreclosures, according to the new survey by the RICS, the Royal Institution of Chartered Surveyors.

"A clear divide appears to be opening up between these markets [U.S. and Europe] and the rest of the world," RICS senior economist Oliver Gilmartin said in a statement.

Overall, 85 percent of the countries surveyed reported a decline in the growth of distressed sales, which doesn't exactly sound like cause for celebration. But eight of the 25 countries actually reported declines in the number of distressed properties, compared to the earlier quarter, led by the BRIC countries.

But 13 countries still reported an increase in distressed listings, including Portugal, the U.S. and Ireland, the survey found. Three countries reported an increase in the pace of distressed sales--Portugal, Spain and Germany. In Portugal, distressed properties are coming to market at almost twice the pace of the first quarter of 2010, the report says.

In the quarter ahead, the divide between the BRIC countries and the U.S. and Europe is expected to increase. RICS members in U.S., Spain, Portugal and several other European countries said they expected the rate of distressed properties to increase in the third quarter; in contrast, surveyors in Brazil, China, India, Hong Kong, India and Canada expect declines to continue. Many analysts are still waiting for the other shoe to drop in the U.S. and Europe, when banks move to jettison commercial property they've been holding on their books.

"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," Gilmartin said.

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