A 1.23-million-square-foot Lowe’s Canada distribution centre is one of the recent massive industrial/logistics developments in Rocky View County, just north of Calgary. (Courtesy Lowe’s Canada)

Calgary’s industrial real estate market continues to be on fire, with new third-quarter data indicating demand for property is increasing while the market tries to keep up with the burgeoning interest.

The report by commercial real estate firm JLL reveals positive net absorption so far this year in the Calgary region is just under six million square feet – with 2.6 million square feet of that in the third quarter.

The overall vacancy rate in the market has dropped to 3.6 per cent from 7.8 per cent in Q2 2020 – or 54 per cent.

Just over six million square feet of space is currently under construction.

Ryan Haney, executive vice-president, industrial practice lead with JLL, told the recent Calgary Real Estate Forum there are a number of speculative products in the market with delivery slated for Q1 and Q2 2022. The report says speculative space under construction was 2.5 million square feet at the end of Q3 with another 800,000 square feet of building slated to start in Q4.

Haney said the low vacancy illustrates the strength of Calgary’s industrial market.

Vacancy rate plummets in Calgary area

“We were at 7.8 per cent about 18 months ago in the heat of COVID and we’ve dropped almost four per cent in our market vacancy during that time. It’s been pure demand-driven,” Haney said during a panel discussion at CREF.

The market, like many across the country, has benefited over the past two years from the explosive growth in e-commerce.

Matthew Sheldrake, manager, growth strategy, City of Calgary, said now more than ever the city is looking for ways to drive and attract industrial growth. He said industrial real estate is finally getting the attention it deserves in Calgary.

“The City of Calgary . . . is uniquely positioned in being able to host a variety of lot sizes, in building bays with a variety of servicing requirements, with close proximity to amenities and air and train nodes, that we can hopefully leverage to meet the market,” said Sheldrake.

Matthew Johnson, executive director, industrial investments, KingSett Capital, said people realize the resiliency of the industrial market in general which the pandemic has really shone a light on.

Calgary industrial sector largely institutional

“People are more optimistic about where we’re going and, quite frankly, we’re in an all-time-low interest-rate environment. While Canada is a relatively small investable universe, you really can’t overlook a market as large and as important to the Canadian investment universe as Calgary is,” said Johnson.

“It’s the fourth-largest population in Canada. There’s more to it than just oil and gas.

“We have not been overly active in buying product in Calgary recently and that’s not for lack of looking or trying. It’s really a matter of the difference between the bid and ask and the spread there has been quite large.”

Johnson said industrial real estate in Calgary is generally institutionally held and those groups have a longer view with deep pockets and the ability to turn on and off the taps for new development quite quickly and easily.

“We’re currently looking at a number of things right now in Calgary,” he said.

Jeff Hyde, senior vice-president, development, Prairies for QuadReal Property Group, said land remains relatively cheap in Calgary, compared to cities such as Vancouver. That is certainly an inducement to develop industrial real estate space.

Calgary vs. Rocky View County

In recent years, companies have been attracted to the Balzac area in Rocky View County, just north of Calgary’s city limits, to build industrial product. The key factor in Balzac is that it’s cheaper to do business compared to the city.

“Industrial has been a cost-sensitive development class . . . and right now it’s the property taxes and it’s the development levies and we’re hearing about that,” said Sheldrake.

“Actually, both of those two are under review right now and there’s been some openness, as the process goes along, to develop those new regimes going forward to look at how we get those numbers lower.

“I can’t prejudge any of that work, but it’s certainly on our radar.”

Hyde said operating in Rocky View County is easier for developers. The permitting process is more streamlined than the City of Calgary and things happen at a much faster pace.

“That’s an important point of differentiation. Time is money and what Rocky View County has been able to demonstrate is that they still have a rigorous process, check off every box, but they’re prepared to change things around if time is of the essence for a tenant in order to make things happen as quickly as possible,” Hyde said.

“We’ve experienced where, in development permit and building permit applications, certain portions of it are happening on a concurrent basis. Doesn’t happen all the time, but there’s this willingness to kind of step out of their own box when they see that there is an opportunity.

“I know the city is working on it, but to be frank they still have a ways to go on that.”

Dahlya Molina, director of leasing, PBA Group of Companies, said many of the bigger players have chosen Rocky View County in recent years over Calgary including Amazon, Lowe’s, Sobeys and Walmart.

“One of the biggest challenges for the city will be to bring that tax rate down. There’s such a differential right now between the county and the city and to me that would make a huge difference,” said Molina.