No Match Found
While Calgary is following many of the real estate trends we’re seeing across Canada, we have a slightly different outlook—in large part because of the impacts related to a struggling oil and gas sector. At the same time, we’re seeing some bright spots, as the real estate industry adapts to a market that’s changing but is also experiencing an acceleration of trends that were already underway. It’s a similar story in Edmonton, where my colleague David Yee, PwC Canada’s Edmonton Real Estate Leader, has outlined what to expect for Alberta’s capital city and some strategies for navigating a changing business landscape in the coming months and year.
The COVID-19 pandemic has exacerbated some of the challenges for Calgary’s downtown core, which has been grappling with waves of layoffs in the energy sector over the past few years. The overall commercial vacancy rate downtown is 28.7%, according to recent statistics from CBRE for the third quarter of 2020. And downtown rental rates are among the lowest in Canada.
But CBRE also points to significant opportunities for tenants willing to commit to longer-term deals. Some of Calgary’s technology companies and start-ups are moving into prime downtown space, taking advantage of more affordable rates next to major energy companies (which are potential clients). In September, for example, local technology companies Symend and Userful leased a total of 105,000 square feet at Calgary’s First Tower.
COVID-19 is also affecting the Plus 15 pedestrian corridor, whose retail stores are dependent on foot traffic passing between buildings. But we’re not seeing an emptying out of downtown that we might expect as people work from home during the pandemic. That’s because, as our recent Canadian workforce of the future survey showed, Albertans tend to be more comfortable returning to the workplace than employees in other parts of the country. We also see a desire among many Calgary businesses to maintain the social aspect of work, have face-to-face meetings and connect with people in ways they can’t over a video chat.
Many landlords are looking to respond in 2021 by working with their tenants to reimagine the future of work through new ways to configure office space for physical distancing requirements. If a tenant could previously fit 150 people onto one floor but can now only accommodate 100 employees, there’s an opportunity for landlords to help them adapt by renovating the space. Some are also trying to appeal to tenants in the technology and other creative industries with modern aesthetics and amenities.
Another trend that’s different in Calgary this year is the question of suburbanization, which we found signs of being on the rise in some areas of Canada as some people adjust to working remotely and look for more space than homes in places like Toronto tend to offer. This is likely due in part to the fact that Calgary has a smaller downtown condo market compared to other cities. And with ongoing uncertainty about jobs and the economy, some Calgarians may not be ready to make significant life changes.
Housing starts in Calgary are down 19% so far this year, which is a steeper fall compared to the 1% decline for metropolitan areas across Canada. But the decline was just 4% for single-detached homes, and we’ve also seen new residential developments planned for Calgary recently, such as Dream Unlimited’s announcement this summer that it’s investing CA$2.5 billion in the Alpine Park mixed-use project in the city’s southwest. The project, which will span 15 years, reflects continued optimism about Calgary’s longer-term economic prospects.
Perhaps the biggest bright spot in Calgary is industrial real estate. While CBRE says the construction pipeline has reached its lowest point since Q2 2017, it expects it to pick up over the coming quarters due to rising demand related to e-commerce and food distribution. We’ve also seen an acceleration since the start of the pandemic of the trend toward repurposing retail space for last-mile delivery as well as continued expansion of warehouse space near Calgary’s airport.
As Calgary grows into a significant warehousing and distribution centre, the main constraint is access to water. This makes water rights a valuable feature for industrial development, balanced in part by the fact that warehouse spaces don’t need access to a lot of water.
All of these changes in Calgary point to the resilience of our local real estate industry. Even as we grapple with uncertainty about the pandemic and the economy in the coming months, real estate players continue to adapt and find new opportunities to reimagine real estate in 2021 and beyond.