The strongest economic expansion underway in Alberta since 2011* has buoyed transactions of commercial real estate in Calgary in the first quarter of 2022, placing renewed pressure on an already tight market for industrial and multi-unit residential and renewing the city’s retail, and to a lesser extent, office sectors. This, according to the 2022 Commercial Real Estate Report from RE/MAX Canada. Total investment activity** topped $2.4 billion in 2021, up 26 per cent from $1.9 billion in 2020, and first quarter figures at almost $1 billion are aligned with year-ago levels.

Demand for industrial and flex space continues to outpace supply, building on a trend that began in 2020 with the onset of the pandemic. Availability rates** continue to trend downward, sitting at 4.8 per cent in the first quarter of the year, down from 6.9 per cent during the same period one year earlier. Average lease rates at $10.00 per square ft., face new pressure as new industrial developments coming on stream at a higher cost per square foot further accelerate prices. Despite the increase, industrial lease rates remain attractive when compared to similar product in other major centres. 

The shortage in supply is likely to get worse before it gets better with Calgary acting as a logistics and distribution hub for western Canada. Multi-national players, institutional and private investors are vying for Class A industrial product. Existing tenants facing higher lease rates down the road are also looking to acquire product. The city is seeking to expand boundaries in both its northeast and southeast quadrants, but it can’t come soon enough. 

Construction on multi-unit, purpose-built residential rentals remains brisk, as developers look to increase the supply of affordable housing in the city. Individual investors are primarily active in this segment of the market, many taking advantage of the CMHC Rental Construction Finance Initiative and various government incentives. There are three office buildings in the downtown core that are undergoing conversion to residential rentals, representing over 400,000 square feet. The city has contributed $31 million to the project. Increased residential density is expected to breathe new life into the downtown core in the coming years.

Strength in the retail sector has been noted outside of the downtown core. To date, the market has recorded a total investment volume of $144 million***. Strip malls have been exceptionally popular with private investors from out-of-province, as illustrated by the recent sale of the London Town Square for $36 million. Good quality retail space has seen some competition, especially for smaller units in prime locations. 

The market for downtown office space remains tepid, as overall availability rates** edged upward to 26.4 per cent in the first quarter of 2022, an increase over the 24.9 per cent reported one year earlier. As the province’s economic engine gains momentum, employees are expected to return to work. There have been some signs of life in the core. Traffic is back up to 85 per cent of pre-pandemic levels, and there has been an influx of new tech companies. Two buildings were sold in the spring—the Canadian Centre and Heritage Square—valued at $12 million and $13 million respectively***. The suburban office market has proven more resilient, with many large companies moving to suburban areas to better accommodate the needs of their employees. 

With Alberta expected to lead the country in terms of GDP growth* at 5.8 per cent in 2022, the outlook is bright for the commercial real estate market. Economic fundamentals are showing rapid improvement, with unemployment levels expected to fall two full percentage points to 6.7 per cent in 2022, while retail sales are expected to build on the 13.1 per cent increase forecast in 2021 by another estimated 7.6 per cent this year. Housing starts are also expected to gear up to accommodate strong demand for residential housing. Confidence is climbing with the return of higher commodity prices, as Calgary begins to move past significant constraints including the impact of the pandemic and the oil price collapse which have hampered growth over the past several years.

*RBC Economics, Provincial Outlook, March 10, 2022

**Altus Group

***Co-Star Capital Markets Overview

National Commercial Real Estate Highlights

With North American stock markets dangerously close to correction, bricks-and-mortar commercial real estate continues to resonate with institutional and private investors, particularly those who are personally vested, across almost every commercial asset class in major Canadian centres, say RE/MAX brokers.

The RE/MAX Canada 2022 Commercial Real Estate Report found demand for industrial, multi-unit residential—particularly purpose-built rentals—and farmland was unprecedented in the first quarter of 2022, with values hitting record levels, while retail and office are starting to show signs of growth in multiple markets.

The report examined 12 major Canadian centres from Metro Vancouver to St. John’s. Regional highlights include the following:

  • 92 per cent of markets surveyed (11/12) reported extremely tight market conditions for industrial product in the first quarter of 2022. Newfoundland-Labrador was the only outlier.
  • 67 per cent of markets surveyed (8/12) found challenges leasing industrial space. Included in the mix were Vancouver, Edmonton, Calgary, Winnipeg, Ottawa, the Greater Toronto Area, Hamilton-Burlington-Niagara and London. Some realtors are recommending tenants start their search for new premises at least 18 months before their current leases come up for renegotiation.
  • While demand for overall office space in the core remains relatively soft in 92 per cent of markets (11/12) across the country, Metro Vancouver continues to buck the trend.
  • Suburban office space continues to prove exceptionally resilient in 67 per cent of markets surveyed (8/12). Those markets include Vancouver, Calgary, Saskatoon, Winnipeg, Hamilton-Burlington-Niagara, Ottawa, Halifax-Dartmouth and Newfoundland-Labrador.
  • Development land remained sought after (industrial/residential) in 67 per cent of markets surveyed (8/12) including Vancouver, Calgary, Regina, Saskatoon, Winnipeg, Ottawa, the Greater Toronto Area and Halifax-Dartmouth.
  • End users are encountering challenges in terms of expanding their businesses due to land constraints/shortages, with specific mentions of this noted in Vancouver, the Greater Toronto Area and Regina.
  • Retail is on the rebound in 75 per cent of major Canadian markets (9/12), with strong emphasis on prime locations in neighbourhood microcosms. The trend has been identified in Vancouver, Edmonton, Calgary, Saskatoon, Regina, Winnipeg, Hamilton-Burlington-Niagara, Toronto and Ottawa. 
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