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VANCOUVER — British Columbia`s commercial real estate markets started their downturn long before the current recession began and have likely passed through the worst of times, a new report from Central 1 Credit Union said Tuesday.
However, the recession, with its job losses and office closings, is continuing to push up vacancies and bring down office rents, which will lead to more contraction before things bounce back.
"The way it works, these market cycles in commercial real estate tend to lead and lag the real economy," Central 1 economist Dave Hobden said in an interview.
Investors bought heavily into commercial properties starting in 2003 and 2004 in anticipation of the strong economic growth B.C. experienced in 2006 and 2007, the peak years for commercial property transactions (2006) and commercial property values (2007).
"So in a way, [commercial real estate] got oversold," Hobden said. "Prices got to the point that they were reflecting that peak growth all the way through the future. Once we saw the economy was slowing, people had to start to adjust."
The value of commercial buildings (Central 1`s research did not evaluate commercially zoned bare land), increased so much, Hobden said, that it became difficult to make a case for buying it as an investment with prospects for increasing rental income and capital gains.
Central 1 found the number of commercial real estate sales dropped a cumulative 34 per cent over 2007 and 2008, and Hobden expects a further 17-per-cent decline over this year and 2010 before sales start showing an increase in 2011.
Hobden also expects commercial-building values to drop 20 per cent in 2009 and 15 per cent in 2010 before rebounding by five per cent in 2011.
Read the full article here.
However, the recession, with its job losses and office closings, is continuing to push up vacancies and bring down office rents, which will lead to more contraction before things bounce back.
"The way it works, these market cycles in commercial real estate tend to lead and lag the real economy," Central 1 economist Dave Hobden said in an interview.
Investors bought heavily into commercial properties starting in 2003 and 2004 in anticipation of the strong economic growth B.C. experienced in 2006 and 2007, the peak years for commercial property transactions (2006) and commercial property values (2007).
"So in a way, [commercial real estate] got oversold," Hobden said. "Prices got to the point that they were reflecting that peak growth all the way through the future. Once we saw the economy was slowing, people had to start to adjust."
The value of commercial buildings (Central 1`s research did not evaluate commercially zoned bare land), increased so much, Hobden said, that it became difficult to make a case for buying it as an investment with prospects for increasing rental income and capital gains.
Central 1 found the number of commercial real estate sales dropped a cumulative 34 per cent over 2007 and 2008, and Hobden expects a further 17-per-cent decline over this year and 2010 before sales start showing an increase in 2011.
Hobden also expects commercial-building values to drop 20 per cent in 2009 and 15 per cent in 2010 before rebounding by five per cent in 2011.
Read the full article here.