Calgary is in the midst of an industrial real estate boom.
The pandemic has fuelled a rapid rise in e-commerce activity and demand for warehouse space, causing vacancy rates to tumble across the country.
As we enter the second quarter of 2022, the need for industrial space continues to increase as global supply chain constraints have led retailers to adopt a “just in case” inventory strategy and seek out even more space to house additional products.
While markets such as Vancouver and Toronto are experiencing a critical shortage of industrial product, with record low vacancy rates of 0.4 per cent and 0.7 per cent, respectively, in Q1 2022, Calgary presents distributors and retailers with a welcome alternative.
Calgary offers low-cost industrial space with access to major transportation corridors, and businesses and landlords across the country are starting to take note.
At Colliers, over the last 12 months, we’ve seen a significant spike in interest in the Calgary industrial market from out-of-province landlords, investors and tenants.
The story around Calgary’s economy is changing. Increasing job numbers, low cost of living and economic growth have sparked renewed optimism in the city, making Calgary an attractive destination for businesses looking for industrial space.
Unmatched land, accessibility and cost
Calgary’s industrial vacancy rate dropped 185 basis points year-over-year according to Colliers’ Q1 2022 Calgary Industrial Market Report, as tenants look to Calgary to support their warehouse and distribution needs.
Calgary has seen major players set up distribution centres in the market over the past few years including Amazon, Lowe’s, Home Depot, Canadian Tire and Walmart and more and more businesses are starting to realize the many advantages of investing in Calgary.
Opening distribution centres in Calgary allows businesses to save on costs and improve operational efficiencies. Unlike other areas of the country, Calgary is not constrained by mountains or the ocean and offers level topography with development-friendly soil conditions.
This provides long-term opportunities for growth while keeping development costs relatively low as there is ample development space for businesses to grow their operations.
One of Calgary’s differentiating factors is that it offers users access to a north-south and an east-west roadway axis, which is beneficial for trucking and logistics users.
It has the transportation corridors to continually meet the growing demand of over 50 million consumers, all accessible within 24 hours through ground, rail or air transportation.
In addition to having the space to house distribution and logistics, Calgary also has a young and highly educated workforce, providing businesses with access to talent to fuel their operations.
A low taxation rate and lease rates compared to tight markets such as Vancouver and Toronto allow businesses to save costs by moving their operations to Calgary.
Calgary’s economy is on the rebound
In February 2022, Canadian crude oil prices surged to over $70 US per barrel, an increase of 75.3 per cent compared to 2021, signalling a resurgence in the oil and gas sector.
Calgary’s tech sector is also thriving, with Amazon Web Services recently announcing plans to open a cloud computing hub near the city, bringing $4.3 billion in investment and up to 950 jobs to the region.
Calgary’s growing economy, coupled with a massive increase in demand for logistics and distribution space, will continue to provide opportunities for investors until inventory catches up with demand.
Decreasing vacancy and increasing demand have caused cap rates to compress, signalling gains for all industrial asset classes.
Colliers’ 2021 Q4 Canada Cap Rate report showed class-A industrial experienced a 1.5 per cent year-over-year decrease in going-in capitalization rates.
Demand from both institutional investors and private capital has been strong over the past 12 months as investors have been able to recognize a material spread in yield between the Calgary market and Toronto/Vancouver markets.
Interest rates begin to rise
Given the strength of the market and record-low interest rates, it is an excellent time for investors and owners to start looking at their options in terms of refinancing or accessing equity for additional investments.
However, time is of the essence as Bank of Canada recently signalled its intentions to aggressively raise rates to combat inflation.
As property values were depressed for the past seven years due to the oil crash in 2014, investors should look at getting their properties appraised so they can take advantage of the current industrial boom the city and local region are experiencing.
The demand for warehouse space is not expected to decrease any time soon as the e-commerce, high-tech and entertainment industries continue to thrive in Calgary.
In addition, the massive increase in building development and strong oil prices will drive demand for manufacturing and service-oriented owner/user industrial product.
These tailwinds are positioning Calgary’s industrial market for a bright future and we expect to continue to see strong market fundamentals.