Diversifying economy among several areas of strength for Calgary’s real estate industry

After a period of struggle for our city, there’s a renewed sense of optimism in Calgary thanks to a diversifying economy, a strengthening employment outlook and higher oil prices helping to buoy the energy sector. Calgary interviewees for our Emerging Trends in Real Estate report are significantly more optimistic than they were in 2020, and many see new opportunities as they look ahead to 2022 and beyond.

Optimism is due in part to the economic diversification happening in Calgary, particularly from technology companies. After posting a 5.7% decline last year, Calgary’s real gross domestic product (GDP) is expected to grow by 5.8% in 2021, according to the Conference Board of Canada (CBoC), with growth averaging a healthy 2.9% from 2022-25.

Areas of strength

We can see the city’s strength in housing sales activity. In its recent report for September, the Calgary Real Estate Board noted sales were near the record high for the month. The benchmark price was more than 8% higher than levels recorded last year.

Conditions are especially tight for detached homes—and builders are responding to this demand, particularly on the outskirts of Calgary. The CBoC predicts housing starts will rise from 9,448 in 2021 to 11,950 in 2025, reflecting Calgary’s improving employment outlook and the restart of immigration activity. Despite the challenges of recent years, in fact, Calgary’s population has continued to grow at a faster rate than other major Canadian cities. When we looked at Statistics Canada data on population growth rates for Canadian census metropolitan areas between 2019 and 2020, our city tied for fourth with Kelowna and Saskatoon. This put Calgary behind fast-growing mid-sized communities like Oshawa, Halifax and Kitchener-Waterloo but ahead of the other largest markets to watch in our annual report on Canadian real estate.

The Calgary market also continues to strengthen for industrial assets. According to Colliers, the industrial availability rate fell to 9% in the second quarter of 2021 as the city continues to see high demand for distribution space. Calgary has been a rising distribution hub for some time, and one of our interviewees pointed to a key reason why when they described how it can be cheaper to unload a ship in Vancouver, immediately transport the goods to a warehouse in Calgary and then ship them back to British Columbia’s largest city than it is to store them there.

Opportunities in downtown Calgary

While CBRE found vacancy in downtown Calgary’s Class A office market remained high at 26.7% in the second quarter of 2021, interviewees cited some opportunities in this area as well. Valuations in the Calgary market are attractive, they noted, creating what some saw as opportunities for investment and development. The city also has a plan to bring new life to Calgary’s vacant office spaces. Over the next decade, it’s looking at incentives to turn roughly half of the city’s vacant downtown office space into residences and creating amenities to help attract residents and talent to the downtown area.

We found mixed reactions to the plan. In discussions with interviewees about the city’s plans, many said that when they’ve looked at converting offices to residential uses in the past, the costs have tended to outweigh the benefits. Others noted they are pursuing opportunities through the program.

A rising focus on ESG matters

Aside from the renewed optimism, a big theme among Calgary interviewees this year was environmental, social and governance (ESG) performance, which many now view as table stakes. With ESG performance becoming an increasingly important factor in attracting capital, many Calgary real estate players are incorporating this into their growth strategies and exploring concepts like net-zero emissions as part of their developments.

But it was clear from our interviews that many real estate players are still figuring out where to start on their ESG journeys. A key step is to find effective ways to tell your ESG story. As you look to incorporate ESG risk and opportunities into your business strategy, reporting and measurement frameworks that follow trusted and accepted standards will be critical to identifying and improving on your strengths and weaknesses. Investing in data and in technology will be key to improving your reporting and measurement practices, which can spur better decision-making and innovation around key ESG issues like energy use.

Working together to create a bright future for Calgary

Overall, there was a strong sentiment among interviewees that ESG performance will play an important role in long-term value creation for the real estate industry. But Calgary interviewees also felt strongly about the need for improved government incentives for ESG-related initiatives, especially given the costs and continued uncertainty about whether consumers will pay for features like energy efficiency upgrades in new homes.

This also extends to one of the other key ESG issues for the real estate industry: housing affordability. While affordability has been less of a concern in Calgary than in some of the hottest Canadian housing markets, it’s an issue here as well. The Calgary Real Estate Board found prices for detached homes were up about 10% in September compared to a year earlier, and the improving outlook for Calgary suggests affordability will continue to be a growing concern in our city.

But this year’s report found a growing sentiment among real estate players about the need for governments to create more consistent policies around housing and affordability and collaborate more effectively with the industry on solutions to address these issues. From incentives to build affordable homes to policies to encourage supply to meet the rising demand for places to live, the industry is looking for signs of better alignment and collaboration on this critical issue for Canadian society. As affordability and other ESG matters play an even bigger role in the future of real estate, it will be important for all players to work together.