A Commercial Success

Calgary and Alberta's commercial markets have continued to make post recession headlines.

"The industry in Calgary has rebounded rapidly since the recession, bolstered by strong growth in employment, retail sales and investment in resource based supporting industries," said a BMO Economics commercial real estate outlook. According to a recent report by TD Economics, commercial vacancy rates in Calgary currently sit at 7.5 per cent with a forecasted decrease to seven per cent by the end of the year. Industrial vacancy rates are even lower with a forecasted three per cent by the end of the year.

BMO stated Canada's strengthening real estate industry, along with the expectation of low interest rates in the medium term, should provide added appeal for investors looking for income-producing commercial real estate properties.

"After a severe and protracted market downturn in the 1990s, the commercial real estate industry in Canada has been characterized by cautious development and prudent lending practices," said Earl Sweet, senior economist and managing director, BMO Capital Markets.

Sweet said factors that make the commercial sector attractive for buyers include limited supply, risk-averse operations, robust corporate performance and low interest rates.

"Higher occupancy — spurred by steady growth in employment, manufacturing, wholesaling and retailing — is reducing o ce, industrial and retail vacancies while lease rates are edging upwards," he said. "Meanwhile, large U.S. retailers are targeting what they view as the underserved Canadian market for expansion."

Examples of some of the large U.S. retailers headed to Calgary include the shopping chain Target, which plans to open stores across the city starting in the winter of 2013. A recent report by Colliers International touched on rumours that high-end U.S. department stores chains are considering taking over spaces vacated by Sears including Chinook Centre.

"Nordstrom, Bloomingdale's and luxury developers plans suggest that they feel consumers in some Canadian markets can support much more retail," said the report.

The numbers are showing Albertans are ready for new shopping experiences as ATB Financial reported retail sales in May throughout the province totaled $5.73 billion, an increase of 1.3 per cent over April's numbers and an 8.9 per cent increase over the same time last May.

"Alberta's strong retail activity is a reflection of several factors," said ATB senior economist Todd Hirsch. "The strong economy in the spring of 2012 has certainly contributed. With good job opportunities and rising wages, Alberta consumers are feeling particularly confident — and they're responding by filling their shopping carts."

According to the BMO report, commercial real estate is doing well across Canada with Toronto also having a post-recession recovery supported by stable consumer and business confi dence, the health of the financial services sector and an upturn in manufacturing.

In Montreal, vacancies fell to 8.2 per cent by the end of 2011 but have increased to 9.2 per cent during the first quarter of 2012. The market is expected to stabilize for the second quarter with continued growth in financial services and limited new supply.

Vancouver has an ongoing lack of supply, which is maintaining high pricing in commercial property asset classes. BMO believes that, along with, low bond yields and volatile stock markets, is driving traditionally conservative investors into commercial real estate.