Commercial property investment in both Calgary and Edmonton increased in the first three quarters of 2018 compared to the same period last year, according to new figures by Altus Group.
Investment in Edmonton reached $3.1 billion during the first three quarters of the year, a 38 per cent year-over-year increase and an 86 per cent increase from the first three quarters of 2016, according to the real estate data, software and services firm.
In Calgary, commercial real estate transactions reached $2.6 billion in the first three quarters, surpassing the same period last year by 11 per cent.
“Even under the greater economic circumstances that we face, there are still some drivers in the market that can keep us going,” said Ben Tatterton, manager of data solutions at Altus Group.
He said much of the investment is coming from the private sector and local owners/users. “But, there is enough to keep a base level going even in the face of greater economic circumstances and concerns,” he told RENX in an interview.
“The overall rise in commercial activity is a positive note, but we just have to pay mind to several of the struggling asset classes that we have here that haven’t really shown stability throughout the year.”
Office, apartment sectors down in Calgary
In Calgary, the office and apartment building sectors remained deflated.
The office market recorded a two per cent year-over-year decline in the first three quarters of 2018, but two large office deals were the major contributors to Calgary’s investment mix in Q3 2018. Dream Office REIT (D-UN-T) sold its IBM Corporate Park to Spear Street Capital for $98 million, and Remington Development Corp. sold 10921 14th Street N.E. for $107 million in a design-build agreement to an end user.
Meanwhile, Calgary’s apartment sector fell by 33 per cent compared to last year, recording just under $113 million in 2018 transactions.
“With an eye to the choppy results of two struggling asset classes — office and apartment — the rise in overall commercial investment from this time last year is a positive note, particularly in the land and industrial markets,” Tatterton said.
Investment in Calgary’s industrial sector fell six per cent, but the decline is likely due to a lack of industrial supply in the city.
Retail investment levels climbed by 26 per cent in 2018 from Q1-Q3 2017 and the residential land market climbed to nearly $496 million this year, a 68 per cent surge from the same three quarters last year.
“Sometimes, when there is a downturn in the economy, there tends to be a little bit of a shift into residential land investment because people try to position themselves into the future and a few years down the line,” Tatterton said.
He said Calgary’s residential land investment could cool and return closer to the recent average after a few strong quarters.
AIMCo, Edmonton Tower acquisition
In Edmonton, one large office deal stoked the commercial market above recent normal levels. AIMCo‘s purchase of the City of Edmonton Tower for $400 million in July accounted for the vast majority of Edmonton’s office investments.
Edmonton’s office sector posted $517 million in sales volume in Q1-Q3 2018 and accounted for 40 per cent of the city’s commercial investment activity.
“We’ve observed strong overall investment levels for two consecutive quarters in Edmonton which were bolstered by large purchases in the apartment and office sectors,” Tatterton said. “These larger deals aside, the overall marketplace has been steady over the past year.”
Edmonton’s industrial sector investment saw a total of $639 million in activity this year, surpassing the 2017 full-year total of $523 million.
Retail investment remained steady through 2018 with $609.8 million invested in total.
Apartment sales jumped by 35 per cent to $570 million, and the residential land market saw $220 million invested by Q3 2018.
“Office (investments) in both markets have been fairly depressed in terms of sales volume, and in each of those markets, the main driver was just a major transaction or two in there that was boosting those office numbers,” Tatterton said.
“I would say office in each of the markets is a case of just those major one large splashes that are hiding the fact that there weren’t that many sales.”