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Calgary investment market off to a slow start as 2022 begins

Strong activity in 2021 cools as investors catch their breath
292083 Crosspointe Road
Summit REIT’s purchase of a fulfillment centre at 292083 Crosspointe Road in the Balzac area ranked as Calgary's top investment deal in the first quarter of 2022.

Pent-up demand lent momentum to the Calgary office market in 2021, but now investors appear to be catching their breath.

Both the value and volume of real estate sales in the first quarter posted double-digit declines, according to Altus Group, although activity was on par with last summer.

A total of $709 million worth of real estate changed hands in the first quarter, down 22 per cent from a year ago. The number of deals fell 25 per cent to 120.

“The market lagged first-quarter 2021 investment of more than $907 million,” Altus reported, but added, “With recent increases in petroleum and natural gas prices boosting the energy sector, which remains a primary economic driver for Calgary, accompanied by an improvement in the capital investment environment, it is expected that the resulting growth will translate into greater demand for Calgary's commercial real estate.”

This is being seen particularly in the industrial sector, which accounted for 43 per cent of transaction value at $303.9 million, up 51% from a year ago.

“Calgary’s market, certainly on the industrial side continues to be very strong, so Alberta will see a rebound in commercial real estate investment in 2022,” said Andrew Petrozzi, a director with Altus Group overseeing commercial research in Western Canada.

Demand for warehousing and logistics/distribution space was fundamental to the increase in industrial investment, which also accounted for the top two deals in the quarter.

The top deal was Summit REIT’s purchase of a fulfillment centre at 292083 Crosspointe Road in the Balzac-Wagon Wheel area, fully leased to Amazon. Developed and sold by Hopewell Development LP, the property includes a 525,000-square-foot cross-dock facility as well as a second, 200,000-square-foot building currently under development.

Altus pegs the cap rate at 4.3 per cent, below the market average for the quarter. This underscored the confidence investors are showing in the market, Altus reported.

The quarter’s second-biggest investment transaction was a 409,360-square-foot distribution facility at 260253 High Plains Way, also in the Balzac area. RCG Group paid Hopewell $64.7 million for the property, or $158 per square foot. Built in 2021, the property is fully tenanted with long-term leases in place.

Office properties were the only other asset category to see greater activity in the first quarter than a year ago. Deal value increased 114 per cent to $61.6 million as just a couple of properties changed hands.

While what Altus described as “the city’s well-documented issue with elevated office vacancy” is being addressed through sale and removal of assets from the office inventory, office cap rates have yet to respond in any significant fashion. They’ve stopped trending upwards but they have yet to experience the compression seen in other segments of the market.

The momentum driving those segments failed to deliver higher deal values during the quarter, however. When industrial and office properties were removed, total deal value was down 49 per cent versus a year ago.

However, the outlook is bright, Petrozzi said. High energy prices on global markets and a lower cost of living draws people to the province, supporting interest in a range of assets.

“We are starting to see a rebound in confidence in the Alberta market that will probably continue to manifest through 2022,” he said. “Energy prices are high, because of the geopolitical conflict in Eastern Europe. … That boosts confidence, and that generally gives investors more confidence in the province.”

According to the Altus report, activity in subsequent quarters will likely receive an added boost as investors look to secondary markets as a viable option for investment due to the ever-increasing pressure in primary markets such as Vancouver and Toronto.

“It is possible that the Calgary market area could benefit from a spill-over effect helping increase market activity,” it stated.