Don't Read The Newspapers
A clear head and solid research—not getting carried away by a news headline—are so important these days when looking at current market conditions, says CBRE chairman John O’Bryan. (Read on for unbelievable predictions!)
John was speaking at the CBRE 2014 Market Outlook Breakfast at the Metro Toronto Convention Centre earlier this week. John spoke to the audience about office, industrial, multi-rez, and retail, but it was office, in particular, and the impact of the new supply coming on board (22.7M SF of office is under construction across the country), that garnered the most feedback, he tells us. The timing of his speech was bang on. That morning Sun Life Financial announced it was moving out of its head office building in the Financial District that it had for 30 years and was moving to One York Street (image) in the South Core, a new building opening in 2016. (If only he could predict when the Leafs will win the cup.)
People in Canada’s major urban centres see an office market that’s softening and are quick to make comparisons to the early 1990s, when it's more like the late 2000s, John says. A lot of the capital in play with these new towers is institutional capital, which views the world in a different way. “There isn’t someone knocking on the door looking for a mortgage payment,” he says. Too many people reach for simplistic conclusions when looking at a sensationalist news headline, where the number of factors interwoven into a market analysis are “very complex.”
As John says, the debate not too long ago was the decline of the office environment since everyone was going to work at home. “How’s that going?” he asks. (Washing all those pajamas proved more troublesome than it was worth.) Indeed, as John tells us, the people managing these funds are “very sophisticated” with very large portfolios, which have seen enormous increases in value these past four-five years, “so they can take on a level of development risk and do it in a very calculated way.” In the image is the new RBC Waterpark Place.
Most fund managers saw better value in investing in new towers than finding comparable older structures. Naturally a market adjustment follows an aggressive build cycle like this, along with a debate over how well landlords running the older buildings will adjust, and how the market will backfill the contiguous space in those structures. “You can’t turn an old building into a new building,” he says. But landlords in older buildings can renovate, compete, and recalibrate with rent, he adds. John is snapped with CBRE’s president of Canadian capital markets Peter Senst.