CALGARY’S INDUSTRIAL REAL ESTATE BOOM

Why Calgary Is Hot

BY JOHN HARDY

It’s not that real estate professionals, particularly commercial real estate professionals, are stodgy, strait-laced and deal in hard-core numbers and percentages, with a weakness for adjectives and superlatives, but they are a bit skittish and touchy about using the word “boom.”

Even though Calgary’s industrial real estate sector is hot and, some say, the hottest it has been in almost 15 years, there is professional reluctance (maybe fearing a jinx) about calling it a boom. OK, OK. Calgary’s industrial real estate is soaring, not booming.

Some say it’s a pointless distraction to guess or analyze ‘why,’ although popular explanations include a post-pandemic boost and record-high activity for industrial space in Calgary. Also that the Calgary area is proving to be an exciting and viable industrial real estate market for national industrial tenants and developers alike.

But there are many reasons why, into Q1 of 2023, Calgary industrial real estate is booming – ah, soaring.

Eddie Lee, Calgary City Assessor and director of Assessment & Tax is positive and upbeat about the assessed value of Calgary’s industrial real estate. “We continue to see steady resilience and sustained growth for industrial and retail properties. Industrial property values have increased five per cent overall, with many typically sized warehouses reflecting value increases. Large format warehouses and newer constructed warehouses reflect higher value increases, as Calgary continues to be a choice distribution hub in western Canada.”

As of year-end 2022, there was about 3.5 million square feet of industrial space vacancy in Calgary, which worked out to approximately a 1.5 per cent vacancy rate. By comparison, Toronto had a 0.9 per cent vacancy rate, and Vancouver was at 0.8 per cent.

Perhaps it’s the comparable and competitive real estate reality that Calgary’s industrial vacancy rate and location make it an attractive alternative for companies needing space, and for businesses looking for facility space outside of pricey, major markets like Toronto and Vancouver.

A key reason may be that, while stats and rates are constantly in flux, Calgary’s industrial rental rates are fairly low compared to other major markets. At the end of 2022, Calgary had an average rate of $9.93 per square foot, compared to Toronto where industrial rent averaged $15.32 per square foot, and Vancouver’s $18.70 average rate.

According to Ian Huston, managing director with Colliers, Calgary, “The Industrial market in the Greater Calgary Area (GCA) experienced a record year in 2022, with very high positive net absorption compared to historical numbers. Typically, the Calgary market experiences 2M square feet to 5M square feet of positive net absorption. But 2022 saw a total of 11.7M square feet absorbed over the course of the year.

“Compared to the Toronto and Montreal industrial markets, Calgary offers a significant discount in asking rental rates, a strong pipeline of buildings currently being developed, and plentiful surrounding lands for future expansion,” he says. “This has kept the GCA as an enticing option for user companies looking for relief from the tight market conditions elsewhere, while still keeping them connected to the overall Canadian supply chain.”

Some commercial real estate experts even borrow from the residential real estate mantra of “location-location.” It is also a factor in the city’s soaring industrial real estate situation. Unlike other desirable industrial areas in Canada, Calgary has a location advantage. It is not constrained by things like mountains or the ocean and is earning a reputation for offering level topography with development-friendly soil conditions, and a natural location to develop large industrial footprint facilities.

Calgary-based Greg Kwong, regional managing director for the Canadian Prairies for CBRE is extremely industrial real estate savvy, and credits much of the soar to shifting business trends and, most of all, shifting consumer trends. “Actually, industrial space, basically worldwide, is on a hot streak. It started around five or six years ago, and the main reason was the increase in the supply chain business and the worldwide growth in the movement of goods. That was the spark. And it is continuing to transform the demand for industrial real estate.

“Calgary’s industrial market has historically been centred on oil and gas, but there has been a shift to tailoring to other industries, such as e-commerce,” he explains. “Virtually every major retailer that has an e-commerce base component to their business –such as AWS, Amazon, Home Depot, Canadian Tire, Loews and others – are either already here, distributing through Calgary, or planning to be here.

“At the moment, Balzac is probably Calgary’s hottest industrial area. And there is also lots of warehouse and other industrial activity along the highway, in the Deerfoot Trail corridor. The signs are hard to miss while driving through those areas.”

Todd Throndson, managing director with Avison Young, Calgary underscores the numbers about Calgary’s industrial real estate sector. “The industrial market was moving at a blazing pace, especially through all of 2022. It was the continuation of a trend of the past few years. Vacancy is at an all time low, rental rates are on the rise, and space is in high demand.

“Together with those metrics,” he says, “the story continues to be about the delivery of space, with the city and region experiencing a run on industrial land that is unprecedented. There is a record amount of space in

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CALGARY HOUSING MARKET CONTINUES TO COOL, BUT EXPERTS ANTICIPATE WARMER CONDITIONS AHEAD