Calgary commercial real estate market – interim update

Note: This is an interim update for the Calgary commercial real estate market, based on transactions through to the end of August 2022. The Q4 2022 update will be available at a later date, when the fourth quarter title registry data is made available.

Investors in Calgary’s commercial real estate market remained keen, with purchasers focused on acquiring industrial assets, ICI land and apartment buildings. This formed a substantial portion of the $2.39 billion in sales proceeds generated through August 2022 and marked a 9.5% increase over the total investment proceeds of the first eight months of 2021.

Like other markets in Canada, investment in commercial real estate in the Greater Calgary market improved year-over-year in the first half of 2022 with $1.76 billion in sale proceeds, compared with $1.64 billion in first-half 2021. The heightened concerns around inflation as well as rising interest rates that started to manifest in deal and dollar volumes in the second half of 2022, appear initially to have had less of an impact in Alberta. Investment proceeds of $631 million were recorded in July/August of 2022, compared with $541 million in July/August of 2021, representing a 16.6% increase year-over-year.

According to the results from Altus Group’s most recent Investment Trends Survey, Calgary was the third-least preferred market in Canada in which to invest followed by Edmonton and Quebec City, which were tied for least preferred.

Survey participants indicated the most preferred asset in Calgary was suburban multiple-unit residential while the least preferred asset types in Calgary included suburban office land, downtown and suburban class B office space along with tier II regional malls. Average cap rates increased across all asset types except for suburban multiple-unit residential, which compressed to 4.4%. Calgary had the second-highest average cap rate in major Canadian markets at 5.68% and the highest average asset cap rate in major Canadian markets for downtown class AA office at 7.2%.

Investment dollar volume in the Calgary area for office buildings, industrial properties, apartments and residential land in the first eight months in 2022 exceeded proceeds from those asset classes recorded in the same period in 2021.

Industrial sales of $787 million dominated overall investment in Calgary, comprising 33% of the region’s total dollar volume through August 2022 and surpassing the $582 million in industrial sale proceeds recorded in the same period in 2021.

Investment in land (both residential and ICI) totaled $692 million through August 2022, a 7.8% decrease from the same period a year earlier. ICI land generated $471 million in proceeds through August 2022, an 18% decline when compared with the same period in 2021. However, residential land sales captured $221 million in the first eight months of 2022, a 27% increase from the total recorded through August 2021.

Investment in Calgary area apartments achieved $459 million in the first eight months of 2022, the third most dollar volume by asset class recorded through August 2022 and a remarkable 79% increase from the same period the year previously.

Investor interest in acquiring retail assets slumped notably with $194 million invested through August 2022, a notable 54% decline from the first eight months of 2021. Office investment climbed to $238 million through August 2022 from $110 million in the same period in the year previous thanks primarily to one notable transaction, the sale of Millennium Tower.

The noteworthy office sales of the Bow and Western Canadian Place, both of which transacted in the fourth quarter of 2021, will not be included in the overall investment totals for 2022 and are now captured in the annual dollar volume of 2021.

Notable transactions

The following are notable transactions for the Calgary commercial real estate market during Q3 YTD (up to and including August 2022).

Millennium Tower, Calgary – Office

The sale of the Millennium Tower in Calgary for $110,250,000 was the largest office sale recorded so far in Q3 2022 and one of the biggest overall deals of the year to date. Acquired in August 2022 by Aspen Properties (in partnership with Hazelview Investments) from an ownership group that included OMERS, Oxford Properties and QuadReal Property Group, the 24-storey, 436,576 square foot office tower at 440 2nd Avenue SW was constructed in 2000.

Skyline Industrial REIT Alberta Industrial Portfolio 2022, Calgary – Industrial

Four industrial properties in Calgary were sold by HOOPP Realty to Skyline Industrial REIT as part of a $309-million portfolio sale in August 2022.The Calgary assets were valued at $147.5 million. The portfolio, which includes buildings in Calgary and Edmonton, comprised approximately 2.15 million square feet and represented the largest industrial sale of the year in the province through August 2022.

The Level, Calgary - Apartment

This low-rise apartment complex with two four-storey apartment buildings sold for $41.9 million in July 2022. The property, which was built in 2018 and is located at 19671 and 19677 40th Street SE, was acquired by Boardwalk REIT from the Rohit Group of Companies. The price per unit achieved was $265,000 in what was one of the largest multi-family residential sales recorded in Calgary through the first eight months of 2022.

Apartment sales and industrial acquisitions are expected to remain key to Calgary’s commercial real estate investment market through the remainder of 2022 and into 2023. However, investment in almost all asset classes is expected to remain stable and even expand with ongoing investment in retail and residential land expected to remain strong with the full results of the third quarter potentially representing the strongest quarter in terms of dollar volume recorded in 2022.

Calgary continues to benefit from strong net in-migration (and investment) from the rest of Canada due to its lower cost of living relative to other Canadian metropolitan areas, which has provided an incentive to invest in the region’s commercial real estate market.