Calgary's commercial real estate market is still going strong especially for international investors. Due to our rich resources and higher wages, there is a high migration rate resulting in more interest to invest in business developments here in Calgary.
According to CREB's Economic Forecast Report 2013, Calgary is expected to lead the country in market growth along with Saskatchewan and Newfoundland and Labrador. In addition, Calgary and Saskatchewan's housing market, unlike other provinces, will also see an increase.
There are many new developments underway in retail, residential condo complexes as well as industrial parks, including Quarry Park.
View the full CREB Economic Forecast Report 2013 here
Calgary has seen a boom in the development of office towers -- a stark contrast from Toronto where developments has been limited by purchasing has been strong.
To those who have been around long enough to remember the more trying days, it seems that Canada’s commercial real estate and development sector has hit its sweet spot. Almost 20 years ago, many in the industry were clenching their teeth with anxiety about the future of an industry that was on the tail end of a market correction fuelled by years of oversupply.
Andre Kuzmicki, executive director of Real Estate and Infrastructure at York University’s Schulich School of Business, remembers that it was at just about that time when experts began to look down the road at how a growing dependence on technology might alter the way companies operate and the space they need to do so.
What they predicted did, in fact, materialize. It was the concept of what’s commonly known today as hotelling — the establishment of an office environment oriented toward unassigned seating. At the time, the conventional wisdom was that advancements in telecommunications and computer technology would allow employees to work off site and significantly diminish the need for office space. In turn, this would create an oversupply of available office space, causing lease rates to plummet and leaving commercial real estate investors with insufficient revenue to cover their costs.
While predictions of the hotelling concept were realized, the new office structure didn’t have nearly the kind of negative impact that had been anticipated back in the 1990s. “There may have been an impact to some degree, but as a whole there’s been additions to office stock due to employment growth,” says Mr. Kuzmicki
John Taylor, partner at Govan Brown Construction Managers, says that despite the recent recession and proliferation of hotelling office structures, there is no shortage of demand for commercial office space and no shortage of work for his company.
“A lot of the large banks and multinationals are investing in new workplaces,” says Mr. Taylor, adding that much of the work involves taking office-space models and retrofitting them to cater to new tele-commuting patterns and elevated standards for environmental sustainability.
These new demands have been a boon to Govan Brown, which typically does more than $150 million in business each year and brought in its highest revenue to date in 2010.
Unlike the residential real estate market, which is now viewed by many as volatile and unstable due to years of low-interest lending and (in many cases) artificial over-assessment, the commercial sector is seen as having a sustainable level of growth that has been further stabilized with the consolidation of property ownership into the hands of a small number of primarily institutional investors.
“[Institutional investors] don’t use debt to the same degree; they’re not traders in their mentality and they have deeper pockets,” says Mr. Kuzmicki. “If the market is soft, they don’t need to backfill space at any cost just to get the revenue, so there’s less reaction to short-term fluctuations. It’s a much more stable ownership environment.”
While activity in Toronto — still Canada’s largest commercial real estate market — has seen more purchasing activity than new developments, emerging markets in the country’s eastern and western provinces reveal a very different picture.
While the vast majority of Calgary’s current commercial real estate was developed back in the 1980s, several new towers have gone up in the growing metropolis over the past five years. The demand for more commercial space has been fuelled by three key factors: a massive influx of new enterprise in response to the province’s oil boom; the consistent merging of companies that require new and larger office space; and, a higher demand for retail spurred by a disposable income that exceeds the national average.
Greg Kwong, regional managing director of commercial real estate consulting company CBRE in Calgary, says the global economic downturn barely made a blip on the radar of the commercial real estate sector.
“Our low was 2009 when little activity happened,” says Mr. Kwong. “Some of the towers were worried they couldn’t get tenants, but the recession [was short]; the pain was only felt for about 15 months and it’s bounced back stronger than ever.”
At the peak of Calgary’s boom in 2006, the city boasted the lowest commercial vacancy rate in the world — an admirable 0.5%.
R.V. Anderson Associates, which offers engineering consultation for major urban infrastructure projects, has seen business boom in cities like Sudbury, Ont. and St. John’s, Nfld. to the tune of 15-20% year-over-year revenue growth between 2008 and 2012. While much of the growth has revolved around government stimulus spending, it’s also the result of fewer industry competitors.
While the commercial real estate picture certainly looks sunnier than its residential counterpart, R.V. Anderson still encounters its challenges. For example, labour shortages, which have been an issue at the sub-contractor and consultant level for the better part of a decade continue to be a hurdle for employers.
“One of the issues we face is that we’ve got a lot of people retiring from the industry,” says company President Ken Anderson. “How do you replace them? How do you sustain [business growth].”
The other issue is the growing number of regulations and the increased industry standards to which all providers adhere — a reality Mr. Taylor knows all too well. “In the old days, you could have started a project without having a building permit, that’s just not the case today,” he says.
The good news is that the sector’s horizon — at least in the near future — offers a rose-coloured hue. Mr. Kuzmicki predicts little change in the years to come. In Toronto, growth will be slow and sustainable and fuelled primarily by higher demand for employment. Elsewhere that growth may be more urgent, but it will fuel jobs and economic activity. The only question remaining in those markets is: How long will the demand last?