Cautious Optimism

With more than 200 transactions over the million-dollar price point in the first six months of 2013, Calgary's commercial market continues to be the subject of "cautious optimism".

Highlighting trends and developments in 11 major centres across Canada, the 2013 RE/MAX Commercial Investor Report found commercial inventory remained scarce during the first half of the year, particularly in the multi-unit residential, industrial, and retail sectors. While sales softened in 73 per cent of markets examined between January and June 2013, Calgary, along with Hamilton-Burlington and St. John's bucked the trend, reporting an eight per cent, 15 per cent and 10 per cent increase respectively in the number of commercial units sold.

"Risk aversion appears to be behind the thrust for commercial product, with owner-operators now investing in themselves," says Elton Ash, regional executive vice president, RE/MAX of Western Canada. "Rather than pay rising office, industrial or residential rental rates, end users are competing against small and large investors for prime commercial buildings. The trend is especially evident in terms of demand for industrial real estate where a limited supply of product has generated the lofty prices now attached to that sector."

Transactions at the recently announced New Horizon Mall in Balzac have already surpassed $100 million. Planned to open sometime in 2016, the developer for the traditional Asian style concept released 400 units for sale on the main floor.

According to recent statistics from RealNet Canada, close to $1.7 billion in dollar volume was reported between January and June in Calgary. Retail space continues to present a real challenge, with more American retailers entering the marketplace.

The retail vacancy rate in the city now hovers at 2.9 per cent, although in some areas of the city that figure is significantly lower. With the Chinook Centre development alone expected to add more than a million sq. ft. over the next couple of years, sending retail sales over the $1 billion mark by year-end 2015, expansion is underway in Calgary's malls.

"On the whole, Canada's commercial market is quite sound," said Ash. "The majority of investors—both local and those from abroad—seem intent on long-term holds which, despite the supply issue, always bodes well for stability. Our major centres are redefining themselves through revitalization and exciting new projects, and we're raising our profile in the process. Population growth and increased density will absolutely necessitate further evolution and place greater pressure on commercial product down the road. Future prospects, combined with current market realities—such as weak returns in other investment classes—have all but made commercial real estate a darling among investors."

One area of concern in the report was office leasing. Just seven months ago, vacancy rates hovered at under one per cent in the core. Today, that rate is close to 5.2 per cent and is expected to climb to 12.4 per cent by 2017. The Bow, Calgary's tallest office tower, with 1.7 million sq. ft. of office space, was completed in 2012. Four additional projects have been introduced since, representing more than four million sq. ft. of space, all scheduled for completion in 2016 and 2017.

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