After grinding through three years of depressed oil markets and the ripple effect on the Alberta economy, the recovery in oil prices since mid-2017 has provided some breathing room for Alberta businesses. While oil price pressure has eased somewhat, there are still headwinds facing industry and capital investment has not returned in full force to the Province.
Despite this, the Calgary region’s industrial real estate market has shown pockets of strength through this tough economic period. While the signs are not yet market wide, there is a growing sense of desire to return to optimism in the face of adversity.
A report by Barclay Street Real Estate says the market experienced about 2.5 million square feet of positive absorption - the change in occupied space - in the first half of the year “with no indication of a significant slowdown in deal velocity.”
The report adds that investor confidence in the Calgary and area market remains strong with inventory growing by 1.2 million square feet in the second quarter with an additional 2.4 million square feet currently under construction and 3.2 million square feet planned.
Much of this activity and investment over the last three years has been in the large format / distribution centre segment of the market. It has been a defining dynamic of the market over the last couple of years.
After five consecutive quarters of declining vacancy, the report cited total absorption of 1.1 million square feet and a vacancy rate of 5.67 percent in the second quarter of 2018.
“For the industrial market, having a vacancy in the mid five per cent range we’re getting into a more balanced market. The previous several years have been much more of a tenant’s market with higher vacancy and it taking longer to just fill a space or sell a building,” said Jon Mook, executive vice president with Barclay Street Real Estate, specializing in the industrial real estate market in Calgary and area.
“We are now finding that there’s this steady flow of activity . . . The overall market is stronger. One of the biggest signs is always the land market and we’re seeing more interest and activity materialize in the last year than we’ve seen in the last couple of years previously. People generally look for land when they’re optimistic enough about the future that they’re willing to build or there’s a lack of available product on the market to suit their needs so they go down the path to build. That doesn’t happen in a weak market when there’s lots of vacancy and lots of options.”
There are early signs that the strength in the distribution segment might be starting to spread to the owner/user type business segment.
Mook said the current industrial real estate market is being driven by two extremes - smaller users that only need one or two acres to build 10,000 to 20,000 square feet and then the very large users.
He added that Calgary and area has not seen the levels of current construction since 2014.
“The big box developers are very bullish about the market and optimistic based on activity in the last 12 months,” said Mook.
The Barclay Street’s report said the region’s abundance of available land combined with access to major CN and CP intermodal yards are helping Calgary transition towards becoming a significant inland port.
“There seems to be some optimism about the future,” said Mook. “There’s a government election (provincial) next Spring and that definitely is talked about a lot. I think a lot of people feel there may be some positive change come next Spring. With that is people preparing to ramp up. The price of oil is better than it’s been in previous years. We are seeing more activity with the energy sector and startups in the energy sector than we’ve seen since 2014. It’s happening slowly but it is happening. That’s been a positive.”
“And e-commerce has driven big box distribution significantly. There’s a number of large deals with companies that want to have a distribution centre here or want to have a larger one.”
One of the projects Barclay Street is marketing is the Fulton Industrial Park, just outside of Calgary’s southeast city limits in Rocky View County, which is emerging as an attractive option for medium and large format industrial and commercial businesses in the region.
The Resland Developments project is located in the Indus area and offers significantly lower land costs, lower property taxes, no business taxes, no municipal franchise fees on power and gas utilities, less municipal bureaucracy and regulation, good access to the city and regional transportation.
Fulton has a high standard of infrastructure design, 11.5-metre wide paved industrial roads, urban road design with curbs and gutters with no roadside ditches, fiber optic communication, and allows stormwater discharge from lots.
It comprises 525 acres with 80 acres already developed. Cost per acre is $350,000 with flexible lot sizes ranging from 2.5 acres to 100-plus acre sites.
The park has excellent transportation access to the Ring Road, Glenmore Trail, Highway 1 and Highway 22x and it fronts Highway 22x and the CP Rail Line. It is roughly 8 minutes from the newest residential communities in Calgary’s southeast.