Oil prices to impact commercial, retail and industrial sectors

Declining oil prices are expected to create added challenges for Calgary’s commercial market over the next 12 to 24 months, according to a new report from commercial real estate firm Avison Young.

Yet, the report also notes that because the city is home to one of the “most productive and best-paid workforces in the country” where average weekly earnings increased 5.1 per cent year-over-year to August 2014, the long-term outlook for the local business community is still positive.

“In the industrial market, growing demand from the U.S. and a weaker Canadian dollar will benefit the export sector, but declining oil prices and volatility in global energy demand could put pressure on resource-based Western Canadian markets, many of which currently boast double-digit rental rates and slightly lower vacancy levels versus the manufacturing-laden markets in the East,” said Bill Argeropoulos, principal and practice leader for Research (Canada) for Avison Young.

Overall vacancy within Calgary’s office leasing market rose in 2014, reaching 8.6 per cent in the third quarter. Moving forward, the appetite for high-quality Class AA product – particularly in the downtown market – remains strong, with space still “extremely limited.”

Downtown vacancy in Calgary topped six per cent in 2014. With so much activity, builders were eager to add more space to the market, breaking ground on five projects comprising 3.9 million square feet of class AA office space, according to the report. More than half (57 per cent) of that space is already preleased.

Calgary’s retail market also saw space at a premium in 2014, with a 2.5 per cent vacancy rate in the third quarter, said Avison Young. More than 600,000 square feet of new retail projects are slated to come on line by the end of 2015, with the majority being grocery-anchored projects in Calgary’s newest residential developments.

While major American retailers such as Marshall’s and Nordstrom made big news by opening outlets in Calgary last year, not all U.S. merchants have had similar successes both locally and beyond. Earlier this month, Target announced it would closing all of its 133 Canadian stores, ending a failed two-year experiment north of the border. In addition, Sony has also announced it will close its 14 Canadian stores over the next two months.

“In Canada, the stunning retail-sector news was that Target Corp. is packing up shop and leaving Canada, just two years after the mega-hyped entry into the country,” Robert Kavcic, senior economist with
BMO Economics.

“Is this a knock on Canada, or the company? While we’re not going to pretend that consumer spending fundamentals are nearly as good in Canada as they are in the U.S. right now, it’s clearly more a case of
the latter.”