Alberta’s strong economic performance continues to fuel commercial real estate in Calgary, with most asset classes experiencing solid activity from both a lease and sales perspective.
Spillover from out of province remains a major source of business in the industrial sector, with warehousing and distribution properties topping the list of investor demands. Given limited availability of industrial space in the lower mainland, most containers that are shipped to BC are now loaded onto trucks for a 13-hour journey to Calgary’s ‘inland port.’ The supply of serviced land zoned industrial has fallen as a result, placing upward pressure on prices and raising lease rates, especially for newer product. Older properties available for sale may provide better returns, or more affordable rental opportunities. Availability continues to trend downward despite on-going new construction, with rates falling to 3.9 per cent in the first quarter of 2023, down from 5.5 per cent during the same period one year ago, according to Altus Group. De Havilland Canada is one of the recent companies to set up shop in Calgary, through its acquisition of 1500 acres in Wheatland County just 30 minutes east of Calgary. The company intends to build a state-of-the-art facility that includes aircraft assembly, runway, parts manufacturing, distribution centres and maintenance repair and overhaul centre. De Havilland Field is expected to be up and running in 2025 and employ more than 1,500 people.
Calgary’s office market has made some headway in the first quarter of the year, with availability rates edging downward. Two factors have contributed to the decline: the uptick in tech businesses and the repurposing of existing commercial to residential. Attracted to the value proposition of the Calgary commercial real estate market, a young workforce, and incentives offered by the Alberta’s Investment and Growth Fund, tech companies, including global tech firm Applexus Technologies, have started moving into the downtown core. Commercial repurposing has also met with success, thanks in large part to a government program providing incentives to convert office space to residential. Ten buildings have been earmarked for repurposing, representing more than 1,200 new homes in the core. The move also eliminates one million square feet of empty office space. Together, these factors have had an enormous impact on the downtown core, increasing vibrancy and sparking renewal in the city that includes a strong retail/restaurant component to service the growing residential presence. These two incentive programs have been so effective to date that lease rates are starting to climb in the core once again.
Suburban office space, particularly in Calgary’s Quarry Park, has been an attractive alternative to the core in recent years, with Imperial Oil leading the charge to the suburbs about eight years ago. The low-key presence within residential communities continues to resonate with many tenants. Lease rates for office space in the suburbs range from $10 per square foot to $15 per square foot.
Low vacancy rates characterize demand for retail space and buildings in Calgary at present. The area’s shopping malls remain vibrant, with Canadian Tire taking over many of the Bed, Bath and Beyond locations in Calgary.
Land sales overall remain brisk, with out-of-province investors seeking industrial, multi-family, and retail properties for development. Existing multi-family is experiencing solid demand from Ontario buyers, especially for new buildings with assumable CMHC financing in place. Recent data available from the Canadian Home Builders Association’s (CHBA) 2022 Municipal Benchmarking Report, prepared by Altus Group, shows that estimated approval timelines for residential development are amongst the fastest in the country at five months in 2022, down from 12 months in 2020. Cap rates in this segment of the market have waned over the past year. REITs are active in the market, typically seeking land zoned residential with approvals for purpose-built rentals in place. Given the higher interest rate environment, some vendor take back mortgages are available but they are generally found on overpriced listings.
Strong population growth, government incentives, and lower tax structures continue to draw companies both east and west of the province to Calgary and its surrounding communities. After an extended period of financial hardship between 2010 and 2020 in the province, the rebound in oil and gas prices, combined with a growing tech centre, and new residential development in the downtown core, are changing the landscape for the better.
**Courtesy RE/MAX Canada**