Commercial market rough, but not like it was in the 90s
by investor on 16/03/09 at 12:39 pm
The 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, told an audience of 1,300 real estate professionals. “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 7% yields but were borrowing at 11% — a crash was inevitable.
“What’s different today. Well, almost everything,” said Mr. O’Bryan.
For starters, he pointed out, interest rates are much lower. But there is also 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 Mr. O’Bryan. “Today, by contrast, [there are] conservatively managed funds with balance sheets, low
leverage and little or no land holdings.”
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