Calgary commercial real estate market update – Q3 2024

Strong population growth sparks a 28% year-over-year increase in activity in Calgary

Calgary reported strong investment activity by the end of the third quarter of 2024, with nearly $3.7 billion in dollar volume transacted, an increase of 28% year-over-year. While sustained population growth drove demand in certain sectors, investors had to navigate challenges stemming from the residual effects of elevated interest rates and evolving economic conditions. Calgary’s appeal was evident to investors. In Altus Group’s Canadian CRE Investment Trends Survey – Q3 2024, Calgary secured second place, trailing only Vancouver as a preferred market. Moreover, investors prioritized food-anchored retail strips, suburban multiple-unit residential, and multi-tenant industrial property types, due to their resilience.

Figure 1 - Property transactions – All sectors by year

Despite sustained population growth and strong industrial demand driven by business expansion, Calgary’s industrial sector showed signs of moderation. The residual effects of elevated interest rates have led investors to adopt a “wait-and-see” approach, in anticipation of future cuts. This caution resulted in a 15% year-over-year decrease in transaction volume, totaling $483 million. According to Altus Group’s Canadian industrial market update – Q3 2024, Calgary’s availability rate increased by 190 basis points year-over-year to 6.8%, suggesting a gradual rebalancing of supply and demand after two years of unprecedented development. Consequently, construction activity has slowed, with only two fully leased industrial buildings, totaling 26,000 square feet, completed in the third quarter. Moreover, approximately two million square feet remained under construction, with over half of the space pre-leased, demonstrating continued underlying demand.

Strong population growth, coupled with a housing affordability crisis, has fuelled the demand for rental properties and driven a significant surge in multi-family construction. However, despite the increased construction activity, the rental market remained tight as demand consistently outpaced the available housing supply. This situation is further exacerbated by a shortage of affordable units and elevated rent growth, which have constrained affordability for many Calgarians. The multi-family sector recorded $781 million in dollar volume transacted, up 64% year-over-year, highlighting strong investor confidence.

The retail sector experienced strong leasing activity, achieving $698 million in dollar volume transacted, a 36% increase year-over-year. This growth was driven by population expansion and investors adapting their portfolios to shifting consumer behaviours. Simultaneously, elevated interest rates, high construction costs, and a skilled labour shortage have constrained retail supply, while demand for premium space remained high, placing upward pressure on rental rates. Reflecting broader Canadian market trends, investors continued to favour neighbourhood retail properties anchored by grocery and general merchandise, as well as shopping centres fit for redevelopment. According to Altus Group’s Canadian Investment Trends Survey – Q3 2024, investors top favoured property type in Calgary were retail-anchored retail strips. This shift aligns with Canadians’ focus on essential spending amidst the rising cost of living.

Calgary’s office sector faced challenges, aligning with national trends, as transaction volume fell 6% year-over-year to $213 million in dollar volume transacted. The Downtown Calgary Development Incentive Program, which subsidizes office conversions at $75 per square foot, has played a crucial role in addressing the city’s underutilized older office space. According to Altus Group’s Canadian office market update – Q3 2024, Calgary’s availability rate remained the highest in Canada at 23%. However, it is important to note, that there has been a steady improvement in this rate after reaching a high of 26.1% in 2021 as rightsizing efforts continued. Moreover, as of the third quarter, Calgary had only one completion, the Glendeer Professional Building, located within minutes of the Deerfoot Meadows Mall, totaling 57,349 square feet, with 39% of the space available for lease. In addition, the Westwinds Business Campus III, a 72,123-square-foot building, with a 100% availability rate, was the only building under construction.

The land sector experienced a rebound in activity, with $1.2 billion in dollar volume transacted, representing a 46% increase year-over-year. This substantial growth was primarily fueled by the residential land segment, which saw sales reach $640 million in dollar volume, a 57% increase year-over-year. Notably, the ICI land segment, also witnessed a strong performance, posting $606 million in dollar volume transacted, a 37% increase year-over-year. These figures reinforced the heightened demand for land across various sectors in Calgary. As previously mentioned, Alberta’s growing population, driven by both interprovincial and international immigration, was a key catalyst. This expansion directly translated into a strong demand for multi-family residential developments, and, consequently, the residential land assets. Furthermore, the strong performance of the ICI land sector suggested investors remained confident in the long-term potential of Calgary’s commercial and industrial sectors.

Figure 2 - Property transactions by asset class (Q3 2023 vs. Q3 2024)

Notable Q3 2024 transactions

3420 Sarcee Road SW – Residential Land

The City of Calgary sold a 4.78-acre medium-density residential land to Sarina Homes last August for a price of $12 million. This land is called Richmond Green, and the price works out to be $2,510,460 per acre for future development. The location is in proximity to the inner city and is about 14 minutes to downtown. Sarina plans to develop a Two-Building, Six-Storey, 363-unit Mixed-use Multi-residential outdoor café, restaurant, and residential apartment complex. According to published information, the first phase of Sarina’s development of the NW corner of this area will provide a mix of 1–3-bedroom units, and the second phase will involve a townhouse development along Sarcee Road.

610 10th Avenue SW (Residence Inn Calgary Downtown/Beltline District) - Hotel

Opened in 2019 as the largest Residence Inn in the world, this 390-suite Residence Inn Calgary is a 33-storey property located in the prestigious Beltline District in downtown Calgary. Manga Hotel Group acquired this luxurious hotel from QuadReal Property Group in August 2024 for a high price of $86,572,800. Manga Hotels continues to expand in diversified markets in Canada. In June 2024, they also acquired the Hilton Garden Inn and Homewood Suites by Hilton in Calgary.

505 2nd Street SW (Prospect Place) - Office

Prospect Place is an 8-story building located immediately adjacent to the Calgary Petroleum Club in downtown Calgary. This building comprises 121,416 square feet and was sold by Hines to Fortinet Technologies for a total consideration of $8.9 million. This building benefits office tenants with a fitness center, locker rooms, shower facilities, secure bicycle parking and a dedicated conference area.

1850 & 1851 80th Street SW - Residential Land

Two large 13-acre lots in the coveted Springbank Hill community were sold by Ronmor Developers to Vancouver-based Jordan Development Corporation in September 2024 for a consideration of $38,645,000. According to the Calgary Planning Department, a construction plan for a seven-building multi-residential project has been submitted, with the temporary use of a sales centre. The total purchase price equates to $2.9 million per acre.

Figure 3 - Overall Capitalization Rate trends – 4 benchmark asset classes

Conclusion

As of the third quarter, Calgary’s commercial real estate market presented a mixed picture. Robust activity characterized the land, retail and multi-family sectors, driven by strong population growth and shifting consumer preferences. Conversely, the industrial and office sectors showed signs of moderation, reflecting the residual impact of elevated interest rates and ongoing market adjustments. While challenges persisted, particularly in the office market, investor confidence remained evident, as the anticipated interest rate cuts and pent-up demand signalled an underlying strength in Calgary’s long-term prospects.

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