Seen as a harbinger of future development, land sales have become the dominant driver in Calgary's commercial real estate sector, with sales topping a whopping average of $150 million per month this year.
Sales of land increased 242 per cent in the first six months of 2013 compared with 2012, reports Avison Young (AY). Land sales accounted for 42 per cent of all Calgary commercial transactions as of mid-2013, up from a 13 per cent share a year earlier.
"The key driver is land sales, which totalled $902 million [in the first six months of the year]," AY reported in its fall 2012 Canada, U.S. commercial real estate investment review.
Total commercial real estate volumes in Alberta's biggest city reached $2.2 billion in the first half, up 4 per cent from the same period in 2012.
A big drop was seen in office investments, which plunged 40 per cent from the record-breaking $1 billion posted in early 2012 to $654 million.
However, AY analysts noted that, "early 2012 was a phenomenal breakthrough period" and cautioned that the current pace remains strong and "should not be viewed as a declining sector."
Office transactions accounted for 30 per cent of the total commercial sector in the first half of this year.
Real estate investment trusts (REITs) are pulling back from Calgary's commercial market in response to higher mortgage rates. AY suggests that this could open opportunities for smaller investors. In the first half of this year - before mortgage-rate hikes in late May - just two REIT office deals accounted for $259 million in sales or more than one-third of all office transactions.
Capitalization rates are compressing, AY found, and are not likely to increase any time soon. This year saw a record-low cap rate for a large suburban office transaction when Epic Realty Partners accepted a cap rate of 5.2 per cent in its $171 million purchase of Quarry Park, a Class A property sold by Remington Properties.
from Western Investor November 2013
