Commercial real estate investment in Calgary, Edmonton forecast to decline

Moderate economic growth continues to be dampened by lack of pipeline capacity, according to CBRE report

Mario ToneguzziInvestment in both the Calgary and Edmonton commercial real estate markets is forecast to fall significantly in 2019, according to a national market outlook report by CBRE.

The report predicts Calgary investment will decline from $4.9 billion in 2018 to $2.8 billion in 2019.

For Edmonton, the forecast is for a drop from $4.6 billion last year to $2.8 billion this year.

“Moderate economic growth is expected for Calgary over the next year as the city continues its recovery from the oil-based recession in 2015 and 2016,” said CBRE. “Significant growth potential is being hindered by stalled pipeline projects. As evidenced by the record price discount for Canadian crude briefly reached in late 2018, oil transportation bottlenecks need to be resolved to secure the long-term prosperity of the region’s energy sector. While the provincially mandated production cuts are expected to help alleviate the current glut of supply in the short-term, the pipelines will be necessary to help open access for Canadian oil to additional global markets. Calgary’s economy can expect a strong boost if the construction of the Trans Mountain and Keystone XL pipeline projects are approved.

“Over the past few years, Edmonton’s downtown core has seen significant development and continues to undergo urbanization and densification. The addition of Rogers Place and the entire ICE District development is key to growth in the downtown core. The renewed vigour is attracting tenants and will support strong office leasing activity in the area. … Demand is strong for class AA office buildings as tenants are demanding better amenities. Tenants no longer view building amenities as a mere commodity but instead now see them as a necessity in order to hire and retain top talent.”

The CBRE report forecasts Calgary’s downtown vacancy rate will rise slightly from 26.4 per cent in 2018 to 27.2 per cent in 2019. The suburban market will see a slight decline, from 20.9 per cent to 20.3 per cent this year. Industrial real estate availability is also expected to drop, from 8.2 per cent in 2018 to 8.0 per cent in 2019.

For Edmonton, CBRE forecasts the downtown vacancy rate will fall from 18.2 per cent in 2018 to 17.8 per cent this year. Suburban office vacancy will drop from 19.9 per cent to 19.0 per cent. Industrial real estate availability is forecast to rise from 7.9 per cent in 2018 to 8.0 per cent this year.

“Coming off a robust year for commercial real estate activity in 2018, investors remain confident in the long-term viability of the Calgary market and are beginning to capitalize on the available opportunities. Another year of strong activity is in store for 2019 as investors looking to enter the market are matched up with those wanting to divest their assets. In particular, public companies are repositioning their portfolios while private firms are solidifying their presence in the market. Another driver of activity in 2019 will be the continuation of mergers and acquisitions, however, such activity is expected to result in additional sublet space coming onto the market as businesses consolidate,” said the CBRE report.

“The private investor market (in Edmonton) will continue to be the most active in 2019. There continues to be strong investor demand for industrial and multifamily assets across all quality of product. In fact, class A properties in both sectors continue to trade at pre-recession yields or even more aggressively in certain scenarios. On the other hand, office investment activity is expected to remain relatively quiet as demand becomes more selective in 2019. Similarly, institutional demand for larger retail properties has been muted while assets under $10.0 million are sought-after and backed by abundant private capital.”

– Mario Toneguzzi

commercial real estate

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