Commercial market outside the core still active
Calgary’s suburban commercial market is bucking the trend and chugging along in the face of Alberta’s current economic downturn, say industry experts.
“The perception is that all commercial real estate is facing challenging times, but the reality is our industrial market and our suburban office market and our retail market are very resilient,” said Colliers International managing director and broker Joe Binfet.
“And, while I wouldn’t say robust, I would say active.”
Binfet credits the suburban resilience to a lower percentage of energy-sector tenants compared with the downtown market, which saw vacancy rates top 17 per cent in the third quarter – nearly double from 9.8 per cent in 2014.
“There’s a more diverse tenant mix (in the suburbs) – medical, some high-tech engineering –and we’ve become the distribution hub for Western Canada – companies are setting up logistics and distribution centres,” he said.
Avison Young senior associate Ryan Rutherford said Calgary’s suburban retail market is still “extremely tight” in terms of vacancies.
“Overall in Calgary, our vacancy rate has been below three per cent, going back to probably 2011,” he said. “The suburbs are still holding strong; the suburban north part of the city is at 1.1 per cent, suburban south 2.7 per cent.
“Alberta retail sales have not gone down really … people are still spending dollars, maybe differently. We’re hearing many of the clients (like restaurants) are flat or up a bit, but their downtown locations are definitely down. Grocery stores are still a big traffic-driver.”
What remains to be seen is what impact the province’s raising of corporate tax and minimum wage might have on smaller retailers, added Rutherford.
“If retail sales go down, and with corporate taxes going up and minimum wage going up, we will see some kinds of (businesses) get squeezed,” he said. “If they have tight margins, we will have some space come back to the market, and the vacancy rate goes up.”
Calgary as a whole saw a noticeable decline in “deal velocity” with regards to commercial property between 2014 and 2015, said Paul Richter, director of research for RealNet (Altus Data Solutions), adding this comes after a spike in 2014.
Commercial transactions in the city declined to 88 in the third quarter of 2015, from 144 the same time a year prior. Fourth-quarter results are not yet available.
Edmonton’s commercial market fared similar to Calgary’s. Market transactions in Edmonton spiked at 114 during the third quarter of 2014, dropping to 68 in the third quarter of 2015 – which, Richter noted, is still higher than any quarter in 2013 which dropped as low as 48.
“It really does appear that people are just hitting ‘pause’ and the trades aren’t happening,” said Richter, noting the statistics take into account office deals, retail, industrial, apartment buildings, hotels and residential and commercial land; he uses the term “deal velocity” to avoid confusion with “deal/dollar volume.”
John Fisher, senior vice-president at CBRE Ltd. in Calgary, cautions, however, that no business or industry is recession-proof.
“Some companies are less susceptible, and some tenancies in the suburban market do international work and are, by a relative measure, doing OK,” he said. “It’s fair to say it depends on your business how the current economic cycle is affecting you.”