We put a lot of emphasis on the residential market when analysing the land cycle.
However, few are aware that historically, the commercial real estate booms and busts have had a far more significant impact on Australia’s economy.
The commercial real estate downturn in the 1990s for example, was a major event.
Despite the recession being officially over in 1991, the crisis for the commercial market peaked in the mid-1990s — with commercial median property values falling over 50% in some parts of the country.
Prices collapsed by around 60% in real terms, and by around 70% in Perth.
Compare that to the drop in the residential median price in the 1990 downturn — of some 10% — and it gives some idea of the magnitude.
Many property developers and investors went bankrupt or were forced to sell at a major loss.
There was a multitude of foreclosures.
Unemployment rose sharply, and many struggled to survive, with a wave of corporate bankruptcies.
The government took a number of steps to pump the economy, such as cutting interest rates and increasing government spending etc.
However, it took several years — right into the mid to late 1990s — for values to return to their pre-crisis levels.
Similarly in the 1970s end-of-cycle downturn, commercial values fell sharply. Properties were left vacant or underutilised.
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