Garry Marr
Province
TORONTO — Canada‘s commercial real-estate market is in rougher shape than it was a year ago but this is nothing compared to the early ’90s, according to CB Richard Ellis Ltd.
The real-estate company’s annual market outlook was heavy on comparisons to the crash that occurred last decade.
“Whatever this is folks, it is not the early ’90s,” John O’Bryan, vice-chairman of CB Richard Ellis, said. “Not only was the development industry operating at warp speed but we were literally heading where no man had been before.”
Last decade developers were getting seven-per-cent yields but were borrowing at 11 per cent — a crash was inevitable.
Today, he pointed out, interest rates are much lower. But there also is less supply of office space coming on stream with the exceptions of the downtown areas of Toronto and Calgary and suburban Ottawa.
“In a nutshell, in the early ’90s we had highly leveraged, very aggressive developers with large inventories, a pipeline full of development projects and compliant lenders, all fuelled by negative yields and a mountain of debt,” said O’Bryan.
“Today, by contrast, [there are] conservatively managed funds with balance sheets, low leverage and little or no land holdings.” For 2009, CB Richard Ellis is predicting large vacancies in Toronto‘s eight major office towers will be difficult to fill.
The situation is similar in Calgary. The downtown is about to see 5.2 million square feet come online over the next three years, as oil prices are falling.
Vacant space, almost impossible to find in the oilpatch two years ago, is about to grow as companies begin subleasing.
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