Sept 5 2009

Yesterday, the Wall Street Journal ran a story titled “GETTING PERSONAL CANADA: Commercial Real Estate Lagging.” The article highlights that while Canada’s residential real estate market is bouncing back quickly, “the commercial market is going to need more time.”

According to recent reports, the Canadian residential housing market has just had it’s fourth strongest quarter EVER. The commercial real estate market just isn’t as hot. In the first half of 2009 there was a 50% decline in the number of commercial transactions over last year. This is includes office, retail, industrial and multi-family properties.

In a separate article by Kristine Owram titled “Bank earnings expected to hit bottom in Q3 on commercial real estate loan losses,” in the Canadian Press, she writes the following:

“Unlike residential real estate in Canada, which has rebounded sharply in recent months – residential resale activity jumped 18.2 per cent in July from a year earlier – commercial real estate, mainly the office building sector, is still struggling.

Data from CB Richard Ellis indicates commercial real estate transactions fell by more than half in the first half of 2009 compared with last year, while the vacancy rate for office space across Canada rose to 8.3 per cent in the second quarter compared to 6.4 per cent a year earlier.
And the situation is even worse in the United States. As a result, the value of commercial real estate hasn’t bounced back like home prices have and in many places it is still on the decline. This means banks that lent money to commercial office holders may end up losing money, particularly if the value of the property falls below the value of the mortgage.”

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