Following on the success of commercial strata in British Columbia, Alberta is seeing an expanding market in office and industrial commercial condo development across the city. Beedie Development Group and Hungerford Properties are both Vancouver developers that are taking their expertise eastward, leading the development for this asset class in Alberta.
“In the last five years, we’ve really seen the commercial condo sector take off,” said Paul Marsden, executive vice-president of industrial sales and leasing for Colliers in Calgary. “It allows small and medium-sized businesses to own their own real estate and build equity. For many of them, that’s their retirement. We are generally not seeing large businesses buying strata units. It’s hitting a middle band.”
Fairmore Business Park is one of three recent commercial condo developments by Hungerford, and the only new office and warehouse project in south central Calgary. It offers one of very few opportunities for businesses to buy new commercial space in the city. Just minutes away from downtown in a prime location, it has drawn a number of owner-operators looking to build equity in their business.
“Our dream was to one day own our own building,” said Vanessa de Mello, owner of Beauty Depot – The Esthetic Institute Training Centre. She and her partner Silvia D’Costa purchased 12,000 square feet at Fairmore and will soon be moving in. “We were leasing, but rates in Calgary are really expensive. Our new building is bigger, brand new and the monthly costs are less than leasing. We will now have both our businesses under one roof in a beautiful custom-designed building, with enough warehouse space and room to expand.”
The development has been so popular, there is only one warehouse unit still available. At $240 per square foot, and with continued low interest rates, Fairmore – and similar projects such as Nexus in Calgary and Paragon in Edmonton – offer opportunities for Alberta businesses, especially those in the office sector, looking to consider buying their own real estate. With construction complete at both sites, businesses can have immediate occupancy.
“The attractiveness of commercial condos is that, with a low interest environment, small business owners see real value in ownership,” said partner Michael Hungerford. “These businesses are able to grow equity through their real estate. They’re able to improve space and reinvest in it knowing that they’ll benefit once the time comes to sell the property. There can be tax advantages for them if they own their own property. They’re able to control their costs and expand or contract their business instead of being at the whim of a landlord.”
In Vancouver and Toronto, commercial condos have been well established for decades, but availability remains scarce. In Calgary, there are more options for businesses wanting to buy into new, high-quality, Class A commercial buildings. And unlike the commercial condo sector on the west coast, commercial condos in Alberta are targeted predominantly at owner-occupiers, rather than investors.
John Phan bought a commercial condo unit two years ago at Nexus Business Centre. “This was our first real estate purchase and Hungerford made it really easy for us to understand the benefits of owning a new space. We have a Vietnamese bakery and restaurant at the front of the building, with food manufacturing in the back. I really like the look of the building, the location, the parking. And our monthly payments are cheaper than a lease so it’s been a smart investment for my family. I wish I’d bought the unit next door.”
Beedie Development Group has three industrial strata developments under construction – and its Highland Common Business Centre has only one unit remaining for sale. That development has drawn a variety of end-users, including a landscape supply company, a tire company and a welding firm. Both of Beedie’s new developments are in Airdrie, approximately 15 minutes from the downtown core, drawing businesses that want to own and benefit from the cost savings of being on the outskirts of the city.
With pricing starting at $165 per square foot, Jorden Dawson, Beedie’s director of industrial development in Calgary, said they are seeing a lot of interest and activity. “A lot of businesses see the value in owning their own facility. Unlike a stand-alone industrial building, commercial condos offer a unique way to own that’s better value, while still building equity.”
Here are the five top reasons for businesses to consider buying office or warehouse space, according to proponents.
1) Growing equity. This is obvious, but easily forgotten. As owners pau down the principal and the property appreciates, so does equity. This is an investment in a hard asset.
2) No rental hikes. Ownership protects the business from rent increases, while the current stable mortgage rates offer the kind of security that leasing can’t provide.
3) Tax advantages. Owners can depreciate the unit and write off operating and mortgage interest expenses.
4) Improving your space. Money spent on renovating – whether it’s upgrades to an office or a showroom – increases the value of the real estate and the business.
5) Alternative financial options. The space can be wholly or partially rented or sold any time, giving an owner flexibility.
Calgary commercial condo units are often priced at about half or less than what they would cost in Vancouver. And with Calgary rents remaining high, commercial condos are an increasingly popular option for the city’s small and medium-sized businesses.
After five years of renting, True Directional Services purchased 4,100 square feet of office and warehouse space a few years ago. “Rent in the Calgary market can be expensive,” said CEO Sean Senos. “Owning my company means we can have more capital to invest in growing the business, rather than rent. It costs us 25 per cent more to rent rather than to own.”