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The region experiences one of its most robust periods ever for real estate transactions in H1 2024
August 28, 2024 | Staff Reporter | Canada | Property Management
Investment activity in Calgary's commercial real estate market was “remarkably” strong through the first half of this year - the third-highest period on record going back to 2013, according to a new report by Barclay Street Real Estate.
The report states that there were 356 transactions for a total of about $1.85 billion in activity. The highest level of investment for the first half of a year was $2.5 billion in 2022, which was inflated by the $1.2 billion sale of The Bow office tower. The second highest was the first half of last year at close to $2.2 billion.
In the first half of 2024, the dollar value invested in multi-residential properties nearly doubled (up 93%) over mid-year 2023 levels, to more than $525 million. Commercial condominiums were also in very high demand, posting investment of approximately $174 million for a 13% year-over-year increase.
Migration, Immigration Drives Growth
David Wallach, the owner/broker of Barclay Street, said Calgary has become a target for people migrating from other parts of the country as well as those immigrating from outside Canada. “That creates a lot of demand,” he said. “The other thing is Calgary is a good place to invest right now as the number one city in Canada in terms of the number of people moving in, creating more jobs in the province, creating a positive economic environment. That’s why we see the investment sales going up.
“If you look at the numbers, the majority that’s going up in the first six months is multifamily, which is not surprising because there’s a lot of demand with all the people moving here. We also saw an uptick in commercial condo purchases, whether it’s multi-retail but also industrial and office. That was the driving force so far."
He noted that lower interest rates could also bring more potential buyers to the market.
Apartment Market Remains Tight
Bob Dhillon, Founder, President and CEO of Mainstreet Equity Corp., based in Calgary and owner of more than 17,000 rental apartments across Western Canada, said the rental market vacancy rate is extremely low.
“After a very long time, I think 10 years, the vacancy rate has gone to zero. The vacancy rate was higher but the costs kept going up. So, when you have the costs rising and you cannot transfer the costs and pass it on to the tenants, your returns get clobbered. And then what we had was eight years of catch-up on the returns,” he said.
“What that translates to is when the Net Operating Income goes up, values go up. That’s how simple it is. Now the values haven’t gone up that much as yet, because interest rates are high. So, my anticipation is that as the rates will start sliding for the next couple of years, we will see a sharp increase in net asset value.”
The macroeconomics driving this are migration, immigration, an influx of international students, higher oil prices and economic diversification, according to Dhillon. “We had headwinds for a decade and now we’ve got the first inning of tailwinds,” he said. “In terms of capital allocation, before Alberta was a no-fly zone because of low oil prices, pipeline fiasco, politics and ESG. Now people are waking up to the reality that oil is not going anywhere.”
According to the Barclay Street report office investment in the first half of the year of $156 million was down about $175 million from last year; retail investment of $321 million was down $97 million; industrial investment of $211 million decreased by $261 million; and land investment of $462.5 million fell by $62 million.
