Cushman Market Survey q2-2017
Unemployment decreased marginally in May 2017 but still remains the
highest in the country at 9.3%. While this has affected the economy of
Calgary as a whole, the city’s industrial market showed resilience. As a
major hub in Western Canada, logistics, manufacturing and distribution
companies accounted for a flurry of activity in the marketplace. In
addition, a Fortune 500 company has positioned itself for entry into the
Calgary industrial market. Market stakeholders have conveyed
confidence that the industrial market has indeed turned a corner.
A cursory look at market vacancy has revealed certain patterns. There
was more activity in the smaller bay segments (less than 20,000 square feet (sf)) compared to larger bay segments. While the market-wide vacancy rate stood at 8.9% insecond quarter 2017, the smaller bays represented just 2.1% of market vacancy, while bays more than 50,000 sf
accounted for 5.5% of total vacancy. In other words, the large bay availability is heavily influencing the overall high vacancy rate in the industrial market.
The feeling of pervasive negativity is dissipating in the market. Quarterover-quarter leasing activity was up by 13%, indicating that the industrial market is gaining momentum. While the market posted a negative absorption of 370,896 sf, it is possible that shadow vacancies may have accounted for this result. The Northeast submarket experienced positive absorption of 98,511 sf while the Southeast and Central submarkets, combined, saw negative absorption of 469,407 sf. Despite the negative absorption, there was evidence of expansion as some firms moved intobigger spaces. For example, VIAD-GES, a global full-service live-events company, represented by Cushman & Wakefield, doubled its space to 60,000 sf.
Walmart, Gordon Foods, Sobeys and others are transforming the hamlet of Balzac in Rocky View County, a greater Calgary regional district, into a hub for distribution of goods. The activity located here continues to have a significant impact on the Calgary Metropolitan Area industrial market as the demand experienced here have assisted in keeping asking rates stable.
Of the 194,729 sf of inventory under construction, 37% will arrive to market in third quarter 2017. Although the amount of square footage under construction is at historic lows, there are growing indicators that the industrial market is just a few more deals away from a new cycle of development. Pension funds, Real Estate Investment Trusts (REITS) and private equity players are well positioned to start construction and supply the inventory required by the market in the foreseeable future.
The Calgary industrial market appears to be in recovery mode. Market activity has increased with respect to prospective tenant tours. While landlords’ expectations are still frozen, the market has started to witness a moderate increase in rental rates, especially in the smaller bay product. The uncertainty surrounding the price of oil notwithstanding, Cushman & Wakefield forecasts a strengthening in rental rates across all bays in the next year. Active demand for small bays, stable logistics and manufacturing companies moving from smaller bays to bigger ones, lack of construction in the market, and strong interest from manufacturing and e-commerce giants south of the border, will help to absorb excess space in the Calgary market. The industrial land market is also steadily improving. All these factors will help improve confidence in a market that is already showing signs of bullishness.
View PDF: Cushman Market Survey q2-2017