Calgary can expect continuing stability in its commercial real estate market in the coming year, despite the uncertainty facing the global economy.
The office market was projected to finish last year with a 10.4-per-cent vacancy rate and continue steady through 2002, according to the CB Richard Ellis market outlook for the year.
Downtown office vacancies were forecast to drop slightly to 9.7 per cent from 9.9 per cent at the end of 2001, and suburban office vacancies to rise to 11.9 per cent from 11.5 per cent. The industrial vacancy rate should rise to five per cent this year from 4.3 per cent at the end of 2001.
The oilpatch produced a moderating effect on downtown lease rates in 2001 due to the number of mergers and acquisitions. Most mergers and acquisitions mean a net loss of space occupied, says Dennis Djonlich of CB Richard Ellis’s downtown group. Space available for subleasing is a mitigating factor on net rental rates.
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| Larry MacDougal, Business Edge |
| A series of mergers and aquisitions in the oilpatch helped moderate downtown Calgary lease rates in 2001, say experts. |
Four landlords control or manage more than 70 per cent of the prime office space in the downtown core. Calgary has thus become a portfolio market, in contrast to Vancouver where many companies own one or two buildings. This portfolio effect helps stabilize lease rates, but the sublease opportunities give tenants some leverage in making rates competitive.
Mike Gigliuk, research director for CB Richard Ellis Alberta Ltd., says Calgary might experience the slowdown as a reprieve from rapid growth. For the economy as a whole, 2002 could be a chance for the city to catch up on infrastructure.
Calgary has been spoiled for the last few years, says Milt Hohol, vice-president for industrial sales and leasing at CB Richard Ellis’s Calgary office. The city is poised for two-per-cent GDP growth in 2002 compared to last year’s four-per-cent rate.
Northeast Calgary will take some of the industrial lustre from the southeast in the next couple of years.
Developments near the airport are onstream, and more new projects such as the city’s joint venture with Remington at Westwinds will be coming.
There are also infrastructure requirements to be met in the southeast, Hohol says.
There is increasing demand for industrial properties worth $1 million to $2 million from private investors, he says. With interest rates so low, $100,000 in the bank might only bring in $150 a month, and they want more.
Food-anchored retail also goes quickly, notes Terry Cox, financial analyst in CB Richard Ellis’s investment properties group.
“If we had 50 small offices, they would go,” says Hohol.
Gary McKelvie, senior sales associate for office buildings at the CB Richard Ellis office, says that doesn’t mean there’s a shortage of suburban office or industrial space.
It means there is a shortage of space in sizes that many people want to buy. “For smaller investors, there is a shortage of product,” he says.
A five-per-cent industrial vacancy rate in 2002 is not as scary as 18 to 23 per cent in the northeast in the early 1990s.
In some isolated suburban areas, such as south on Macleod Trail, it’s tough to find space. At the same time, there is ample space in the Beltline.
Hohol says the industrial leasing segment is showing signs of a tenants’ market. It hasn’t shifted totally that way, but there is more negotiating room.
There has been a lot of recent construction in the sector resulting in trailing vacancies, the space left behind when a tenant moves on.
The retail real estate market should continue to grow in 2002, says Steven Martin, associate vice-president and sales manager for retail at CB Richard Ellis. There is still a pent-up demand for retail space on the west side of the city, he says.
Real estate agents saw their revenue jump dramatically in 1999 from the previous year, Statistics Canada reports.
Revenue for the real estate agent, broker, appraiser and real estate activities industries was $6.1 billion, a rise of 27 per cent from $4.8 billion in 1998.
Expenses were $3.9 billion, up five per cent from $3.7 billion in 1998. Statistics Canada says the industries are dominated by the offices of real estate agents and brokers, which account for 94 per cent of the revenue.
Real estate rental and property management service industries had a 22-per-cent revenue increase in 1999. Those industries garnered $37.9 billion.
The non-residential sector took in 55 per cent of the revenue, the residential sector 39 per cent and property management six per cent.
