With a few lingering speed bumps, the early 2023 commercial real estate statistics, trends, and indicators now indicate that Calgary's commercial real estate market is on the upswing. At the end of 2022, the positive absorption and vacancy momentum began to emerge.
The healthcare, engineering, and energy sectors will be the most active in the suburbs in 2022, with suburban office markets recording a sixth consecutive quarter of strong activity.
The report also emphasised the need to modernise workplaces in Calgary and that "flight to quality" will continue to be a key theme for 2023 in the struggle to attract and retain talent. Although the precise rates and percentages may differ significantly from expert to expert, Calgary's commercial real estate is finally going in the right direction.
Regarding the high office vacancy rate, Calgary finally received some encouraging news. As the city had its second consecutive quarter of positive net absorption of office space, the downtown office vacancy rate decreased marginally to 32.6%.
The industrial market in Calgary has continued to grow. 52.0% of the new speculative industrial product of 1.0 million square feet that was delivered in the fourth quarter was pre-leased.
The statistics demonstrate our city's resilience to adversity on a worldwide scale as well as the flexibility and adaptation of our commercial real estate market. The commercial real estate year-end report for Calgary is summarised here.
1. Commercial Sector
The previous year was the strongest industrial year in Calgary history. And we anticipate that it will carry on until the first half of 2023. The industrial market in the United States is beginning to show signs of weakening. It is concerning that major firms like Amazon are offering space for sublease or sale.
The distribution industry appears to have occupied too much space and may be due for a break as they process what they ate in 2022. Because of our central location and cheaper cost base compared to other markets, Calgary continues to look strong as there is pent-up demand and new distribution warehouses are announced.
2. Retail Sector
The retail landscape will see the biggest shift. Many large shops in the restaurant industry that had faded away are resurfacing with fresh ideas. From a real estate standpoint, other sectors like fashion (e.g. Zellers) won't have a significant influence, but it demonstrates what the retail industry is thinking as they pursue the erratic consumer.
As the pandemic's effects fade and business resumes as usual in 2023, we anticipate ongoing robust demand for the restaurant industry. In addition, during the following 12 to 18 months, streetfront retail will experience a recovery.
3. Single Family Home
The most recent quarter saw a fall in housing starts for detached homes in Calgary, which coincides with a tightening housing market caused by a widening supply-demand gap in the single-family sector.
According to data from the Canada Mortgage and Housing Corp., the number of detached housing starts decreased by 16% during the first quarter of 2023, reflecting a larger trend across the nation.
At the same time, Calgary has welcomed approximately 8,000 new residents, which is 27% higher than in the same period in 2022, a year of record population increase. According to Calgary's real estate board, the average cost of a detached home in that city was roughly $730,000 in May, an increase of 11% from a year earlier.
4. Multi Family Home
For the past two or more years, the multifamily sector has been operating tremendously well thanks to record rental demand, rising rental prices, and accelerating demographic changes that have caused a massive influx of people into new markets. Overall, this contributed to exceptionally high occupancy rates and double-digit rent growth, which produced unusually high returns for the building's owners and investors.
Multifamily real estate is currently under pressure on many fronts as the year 2022 draws to a close, including sharply rising interest rates, lingering supply chain problems, geopolitical issues, record-breaking inflation, declining consumer confidence, pressures on rent, and the looming threat of a recession.
5. Business Sector
For Calgary's downtown office towers, 2022 saw the first year of positive net absorption since 2019 and an increase in assessed value.
The overall vacancy rate for commercial offices decreased by 120 bps to 26.1%.
The vacancy rate for downtown commercial property dropped 200 bps to 28.4%.
In 2023, developers will still be converting office spaces into residential units because the city's Development Incentive Programme will partially subsidise the cost of doing so.