Calgary industrial property is in hot demand among investors, but current landlords are in no hurry to sell, according to a recent report.
The volume of sales is near historic lows, says Avison Young Commercial Real Estate (Alberta) in its spring industrial review.
The problem is lack of supply, not lack of demand.
Tenants whose leases are expiring look to own their space. They seek land to build on if they can’t buy their buildings. Thus, owners of existing buildings can hold out for higher prices and convenient developed land is depleted.
The number of investors seeking revenue-producing industrial property in Calgary exceeds the number of owners willing to sell, adds Avison Young.
(Industrial space in Calgary often means warehousing for the city’s strong and growing presence as a distribution hub.)
Ed Dorosz, an industrial sales and leasing agent with Avison Young, says there is a fair demand for industrial land, and the city has to keep servicing land to continue growth.
Leasing of existing industrial buildings is picking up, helped by the rise in energy prices, he says.
Developers are still cautious about building new space after last year’s economic slowdown. Industrial land developers had over-built for a couple of years.
“A couple of years ago, they would just put up a building and it would get filled up,” says Dorosz.
Norman Lippitt, industrial broker at Avison Young, says absorption by the market of speculatively built industrial buildings has slowed after peaking in 1998.
Rental rates for newer buildings remain firm, but functionally obsolete buildings face declining rents if they can’t be repositioned in the market.
An example of repositioning might be a building in a high-traffic area that could be converted to office or retail, he said.
At competing CB Richard Ellis Alberta Ltd., the industrial vacancy rate is pegged at four per cent for the first quarter of this year. That’s a slight rise from 3.3 per cent in the final quarter of 2001.
Mike Gigliuk, research director for CB Richard Ellis, says there is still some pent-up demand for industrial space, but there has been an increase in availability. The amount of construction is bound to cause fluctuations.
Larry Taylor, general manager of the city’s corporate properties department, says supply of serviced land is meeting demand.
The city’s preparation of land is driven by the users. Demand slowed in the last quarter of last year.
The city expects to sell about 100 acres of industrial land this year. The city has already held meetings with potential users for its next major development project in 2003, about 150 acres.
About half of that would likely be sold to builders to sell to the end users, Taylor said.
Paul Derksen, an industrial broker at CB Richard Ellis, says there is near equilibrium on land sales. Specific location needs, such as in the northeast, could be a problem.
Space over 100,000 sq. ft. is hard to find in existing warehouses. Buildings even five years old don’t have the flex capability of newer structures, he says. The tenant has to be satisfied with the existing space.
The industrial market is quick to react, and the market may only be six months from another building, adds Derksen.
He notes there is strong demand by distribution tenants for the Freeport development north of the airport lands in northeast Calgary. Fifty acres are under contract, with another 80 to be developed for warehousing tenants.
The development is bounded by Country Hills Boulevard, Barlow Trail, Airport Trail and Deerfoot Trail.
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The house-building industry this week launches two new courses for beginners in selling new housing.
Pat Almond, executive director of the Professional Home Builders Institute, says the courses will run at least once a month depending on demand.
“Customer Service” starts this Thursday and “Orientation to New Home Sales” on Saturday. Both run from 8:15 a.m. to 4 p.m. and cost $125.
For information and registration, call Pat Almond or Michelle Rolston at the Professional Home Builders Institute of Alberta, 216-8310 or 1-888-325-9999.
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Residential developer Genesis Land Development Corp. has completed $16.7 million dollars in financing and will save $1.6 million a year on interest.
“The majority of the financing proceeds will be used to pay down and consolidate higher-interest loans, which were originally used to consolidate our 17,000-lot inventory position,” said company president Gobi Singh.
Genesis’s flagship projects are Canals North and Bayside in Airdrie and Taravista and Symons Valley in Calgary.
