Purpose-Built Rental Top Asset Class in Calgary Commercial Real Estate Market

2024 Calgary Commercial Real Estate Trends

The Calgary commercial real estate market is expected to remain strong in 2024, bolstered by a positive economic outlook. This, according to the RE/MAX 2024 Commercial Real Estate Report. With population growth rising by just over 200,000 in the province in 2023, the demand for housing has never been greater. Multi-family purpose-built rentals in Calgary are the top-performing asset, with vacancy rates sitting at a tight 1.4 per cent in October of 2023, according to Canada Mortgage and Housing Corporation (CMHC).

The influx of interprovincial migration and immigrants is challenging the city’s housing stock, with vacancy rates at the lowest level in a decade. More than 3,000 new units came on stream in the city in 2023, with newly completed units available the Beltline, Downtown and the North Hill areas. Purpose-built rental apartment starts have overtaken condo starts for the first time in 2023. The CMHC was instrumental in the shift, offering low interest rates, nominal down payments, and long amortization periods to builders and developers who answered the call in abundance, especially after the federal government cancelled the Goods and Services Tax (GST) on new builds.

In fact, Calgary leads the country in conversion projects in the downtown core, with 17 former offices converting to residential rentals. Several of the projects have already been completed and the result in terms of foot traffic has sparked some renewed interest in retail space in the downtown core. Some of the other considerations for excess office space include hotels and colleges with built-in residence options. By 2026, more than 11,000 people are expected to be living in the downtown core. As such, Calgary is one of few markets in the country that has registered a decline in office vacancy, sitting at 23.2 per cent in the first quarter of 2024, according to Altus Group. While still impacted by hybrid work schedules, the office sector in the core has seen some downward momentum in vacancy rates, in large part due to conversion efforts and incentives offered by the municipal government. Suburban office space has remained relatively stable year over year, with staffing less impacted by the hybrid work model.

Calgary’s retail sector is doing well, with few vacancies reported in the city. The segment has experienced an uptick in demand for medical space, as well as health and wellness businesses. Demand for daycare centres continue to be strong, but given the necessary requirements, a limited supply of product is available. The tenant mix is changing at many of the city’s malls, with some adding new restaurants to draw additional shoppers. Some landlords are looking at converting under-utilized parking lots to purpose-built residential. RioCan recently acquired land adjacent to its Glenmore Landing Shopping Centre to create a mixed-use development that calls for greater densification through purpose-built rentals.

Strip plazas continue to thrive in Calgary, with little to no retail availability. Investors are particularly interested in this product, given its mixed-use potential for retail and multi-family.  Development land is also sought after, with properties within proximity to the city’s core especially desirable. In an effort to target affordability, the city is also investigating the conversion of the Franklin LRT parking lot to as many as 300 purpose-built affordable rentals.

Industrial remains strong, despite an uptick in availability rates to 5.8 per cent in the first quarter of 2024, compared to the same period one year earlier, according to Altus Group. More balanced conditions have emerged with the influx of new inventory into the market, dominated by warehousing and distribution facilities. An additional 3.6 million sq. ft. is expected to come on-stream in the year ahead, placing additional upward pressure on the overall vacancy rates. More specialized product is experiencing tighter market conditions, with fewer listings available for sale/lease. Owner-occupiers are most actively seeking smaller commercial buildings, while larger tenants appear to be more comfortable with renting.

Real Estate Investment Trusts (REITs) and institutional investors continue to be active in both the industrial and multi-family segments, given the high rate of return on multi-family and industrial in the city. According to the Business Council of Alberta in its Spring 2024 Report, business expectations and intentions are strong, and the province is attracting a larger share of venture capital dollars, now at 11 per cent in 2023 from seven per cent in 2022, despite a national dip in overall investment. With population growth, business expansion and overall economic prosperity, the outlook is bright for Calgary’s commercial market.