Low oil prices affecting St. John's luxury condo, commercial real estate market

As oil prices continue to plummet, people involved with the St. John's condo and commercial real estate markets say they are beginning to feel the pinch.

They say the pinch is mostly being felton the high end, as planned condominiums transition to apartment complexes, and existing owners of luxury apartments find rentershard to come by.

• More space than renters in St. John's, lower demand for high end digs

• Gas prices drop more than 5 cents a litre, hit lowest level in 12 months

• Duckworth Street condo development shifting to rentals

Consider a place like The Narrows, a recently builthigh-end condominium complex on Duckworth Street, in the city's downtown.

Real estate agent Larry Hann says one condo owner had to drop the rent onone property from $5,000 a month to $3,000 in hopes of finding a tenant.

But even at $2,000 less than the formerasking price, the condo is still vacant.

"It's fairly obvious to anyone working in the industry the prices are coming down," said Hann.

"There's a lot of inventory on the marketthere's a lot of nervous people, nervous investors."

According to Hann, oil companies are looking for any solution to cut costs these days.

One of the ways they're doing this, he said, is bychoosing to rent out fewer luxury apartments forexecutives.

"The oil executives [are]the primary catalyst for the executive condominium market and because [of] the lack of new businessnew oil businessthe demand is down."

Times have changed

Times have changed in the condo market, evensince The Narrowsopened in 2011.

Owners of condominium units then were entering a boomingmarket, fuelled by an oil boom in Newfoundland and Labrador.

But as jobs are cut, and oil companies tighten their belts, property owners say that many of the people who may have once considered purchasing a luxury condo or renting one downtown are no longer doing so.

New condo construction has also slowed to a halt in St. John's, and many companies planning todevelop condos have switched focus, and turned them into rental apartments instead.

As of now, theCanadian Mortgage and Housing Corporation said it isnot expectingoverall real estate prices to fall in St. John's.

But if oil prices continue to stay lowand job cuts continue, that might change.

Commercial real estate an area to watch

Charlie Oliver, whose company Martek Morgan Finchowns a lot of commercial real estate in St. John's,said that the markets downturn is inevitable, and that his companyis ready to weather the storm.

He sees the low price in oil as having a two-tiered effect, which will lead to companies trying tominimize their costs.

"We're going to see the oil companies themselves and we're going to see the subcontractors respond to low oil prices by saying we've got to consolidate and shrink down our operating costs," said Oliver.

"Part of that relates to office space and the rental rates they are paying for it."

When leases expire, Oliver thinks that many oil companies will seek to renegotiate their leases.

In some cases,this may also result in wider vacancies in commercial office buildings.

"I think we in Newfoundland have always been highly creative. We've always found ways out of the puzzle, out of the maze," he said.

"We should over the next year or two find a way to minimize or mitigate the vacancy."