This week, coverage of Alberta’s rocky real estate market dominated Western Investor and other news sites. Municipal markets in the province emerged as safer bets than the big-city markets in Calgary and Edmonton, while the multi-family sector in Calgary faced the tough choice of transitioning from for-sale condos into rental suites to compensate for slow activity. Meanwhile, in the wake of Trump’s first few weeks as U.S. president, the conversation around his effects on Canadian real estate was revisited.
Here are our top four picks of what’s buzz-worthy in the world of commercial real estate this week.
Calgary's new condo sales plunge – Western Investor
With unsold inventory in the city hitting a 16-year high, developers are forced to turn condos into rental suites in the hopes of turning any profit. But the city’s rental market isn’t faring much better.
After years of rapid construction, Calgary now has more than 800 new and unsold condo apartments, the highest level since 2001, according to the Canada Mortgage and Housing Corp. (CMHC).
And the condo inventory is rising. As of the end of 2016, the City of Calgary had received 27 development permit applications for a further 5,100 units. In 2015, more than 5,000 condo apartments were started, many of which are now hitting the market.
Meanwhile, the benchmark price of a resale condo apartment has fallen nearly 5% from January 2016, reports the Calgary Real Estate Board, to $269,000, and apartment sales are down 30% from two years ago.
According to Calvin Buss, principal of Buss Marketing, which specializes in new condominium projects, several Calgary developers have found they can’t charge high enough prices in the current market to make their projects economical. Buss said that three out of four condo projects that have come across his desk in recent months have been converted to rental developments.
But Calgary’s slumping rental market offers scant shelter, said Shamon Kureshi, president and CEO of Hope Street Real Estate Corp., a major Calgary property management firm.
“Times are hard for every single landlord with whom I’ve spoken in the past eight to 12 months. Empty rental properties abound, and no obvious solution to the province’s empty rental property phenomenon exists.”
Calgary real estate sales rise 24% in January but still below long-term averages – CBC
The bad news for Calgary continues in CBC coverage detailing a rise in real estate sales – though it’s not enough to get the city out of its slump.
A total of 947 units sold in January, marking a 24 per cent increase over the same month in 2016.
But that mark is still well below the 10-year average, CREB chief economist Ann-Marie Lurie cautioned.
"While housing conditions continue to favour buyers, a slow transition toward more balanced conditions is helping to ease downward pressure on home prices," she said in a release.
"Conditions have improved over last year, but people need to remember that last year's market was one of the weakest on record. Despite the appearance of a major shift in activity, the transition in the housing market is going to be a slow process."
Lethbridge has Alberta's leading economy – Western Investor
Some positive news for Alberta comes courtesy of Lethbridge, with more active sales and higher cap rates than almost anywhere else in the province.
Lethbridge is expected to be Alberta’s strongest municipal economy in 2017, according to ATB financials chief economist, Todd Hirsch.
A recent Avison Young study adds that the city’s real estate markets are projected to “remain stable” in 2017, no small feat in Alberta this year.
“All [real estate] asset classes are trading at healthy levels in Lethbridge and are expected to continue to offer 6 per cent to 8 per cent capitalization rates through 2017,” the Avison Young study stated.
Lethbridge’s office market recorded a decrease in vacancy to 14.7 per cent in the third quarter of 2016, the study noted, but new tenants may find some great deals. “Tenants are still able to negotiate incentives, including free rent and higher tenant improvement allowances,” according to Avison Young.
‘Trump risk’ hangs over Canadian real estate market – The Globe and Mail
U.S. President Donald Trump is already making some big moves in the States, but The Globe and Mail is waiting to see how Bank of Canada lending rates will be impacted.
Royce Mendes, senior economist at Canadian Imperial Bank of Commerce, is one of many Bay Street players grappling with the question. Mr. Mendes recalls the uncertainty of U.S. election night, when he finally left CIBC’s downtown office tower at 3 a.m. Financial markets have been weighing the impact of President Donald Trump’s tweets and pronouncements ever since, he says.
The new U.S. administration’s impact on the outlook for the Canadian economy is mixed: Alberta could receive a boost from Mr. Trump’s stance in favour of pipelines, Mr. Mendes notes, but his protectionist impulses could put this country at a disadvantage.
“I don’t think I’ve ever heard him say he would make Canada great again,” Mr. Mendes told a recent gathering of Sotheby’s International Realty Canada agents and clients.
The Bank of Canada, meanwhile, has its own aims: The central bank is warning Canadians that the housing market is a major risk, he points out, and policy makers would like to see the country’s economy move away from debt-fuelled investment and real estate.
In 2015, housing accounted for one-fifth of Ontario’s growth in gross domestic product and one-third of British Columbia’s.
The economy hasn’t been getting the help from exports that many economists expected to materialize with the decline of the Canadian dollar against the U.S. currency in the past couple of years, Mr. Mendes adds.
Even though the loonie has fallen, some other U.S. trading partners such as Brazil, Great Britain and Mexico, have seen steep depreciation in their own currencies, and they have been able to sell more to the United States as a result.
Mr. Mendes is forecasting that the dollar will fall to 72 cents (U.S.) by the third quarter from its recent level of about 77 cents.
Mr. Mendes acknowledges that it’s difficult to forecast around “Trump risk” because of the contradictory signals coming out of the United States. But with threats of a border-tax adjustment and renegotiation of the North America free-trade agreement, there’s a chance his 72-cent forecast will turn out to be too optimistic, he acknowledges.