Calgary’s biggest industrial land deal of the year is showing the industrial market in Alberta remains strong despite fears of economic headwinds.
With an active development program on the go in Edmonton, Panattoni Development Co. partnered with Manulife Investment Management’s real estate division to purchase 122 acres from the City of Calgary at the strategic juncture of Glenmore Trail and Stoney Trail.
The site in southeast Calgary’s Point Trotter industrial area is zoned for up to 2.3 million square feet of industrial space in various formats. It constitutes the entire second phase of the city’s Point Trotter development. (The first phase launched in 2016 with a focus on smaller owner-occupier users; parcels remain available.)
The site will be developed as the 68th Street Logistics Park.
“You’re basically two right-hand turns off 68th Street and you’re on Stoney Trail. A left-hand turn onto Glenmore. So as far as access goes, it’s really a centre-ice location,” Panattoni development manager Mark Edwards said in announcing the deal August 11.
The deal is the largest industrial land transaction in Calgary this year to date. The city did not disclose the purchase price pending registration of the sale with land titles, but the city offered the properties last fall for a price in the range of $77.4 million.
“When you rank this in with other large industrial land sales, it was a significant size and ranks up there with some of the other major industrial land transactions of the last five years,” said Neil Ferris, a senior vice-president and partner with Colliers International in Calgary who represented Panattoni in the transaction.
Panattoni previously acquired a 74-acre site from the City of Calgary in August 2021 for $42.6 million. Work is underway on an Amazon fulfilment centre totalling 2.6 million square feet that’s set to complete later this year.
The deals mark Panattoni’s return to Calgary after years of focusing on sites in Edmonton. They’re also a reflection of the strong demand for industrial space in the city, a function of competitive lease rates and short delivery times.
“As we see rental rates continue to climb in Toronto and Vancouver, where you’re seeing transactions on 200,000, 300,000-square-foot warehouses in the high teens in Vancouver … Calgary is still a very affordable market. We’re probably in that $9 range for similar type of product,” Ferris said. “So there’s a big opportunity, and that’s really what Panattoni and Manulife see as well.”
While other major land purchases in the market have taken place outside city limits, such as Enright Capital Ltd.’s purchase with GWL Realty Advisors Inc. of 145 acres in Balzac at the end of 2021 for a multiphase logistics development, Panattoni’s acquisition is unique for being within city limits.
“There’s no real tract of land inside the city of Calgary currently that somebody could go and acquire to develop on outside the 122 acres that was just acquired by Panattoni and Manulife,” Ferris said. “They’re going to be the only opportunity for someone to look at building a warehouse inside the city of Calgary.”
The southeast Calgary market has the lowest vacancy rate outside the city core at 1.8 per cent, and the most active development market in the city with 1.1 million square feet under construction in the second quarter – more than a quarter of current development activity.
Ferris says buildings could be ready for occupancy in Panattoni’s planned logistics park by late 2023.
While high construction costs and rising interest rates could dampen demand for logistics uses, the deal points to developer confidence in a market where vacancies currently sit at 2.5 per cent and falling while lease rates are moving higher.
“Calgary was always a more expensive warehouse and logistics market on a per-square-foot rental rate than you would have in Toronto, and that’s been flipped in the past 24 months for the first time,” Ferris explained. “To put a larger warehouse tenant in Vancouver at $18, $20 rental rates versus putting that same use in Calgary at $8.50, $9 and maybe that climbs to $10 over the next 12 months, there’s still a significant savings. … Rates still have a long way to go to climb to discourage companies from coming here.”