An “astonishing” increase in investment transactions in the first half of 2022 had broad underpinnings in the second quarter, according to data released this week by Altus Group.
Commercial real estate investment surged to $3.73 billion in the first six months of the year, a 147 per cent increase versus 2021.
Deal-making was led by the office sector, where 21 deals accounted for $1.84 billion in transactions in the period, led by sales of the landmark Bow and Western Canadian Place office towers. Together, the two tower sales totaled $1.7 billion.
The activity trounced the $67.1 million worth of office transactions that took place a year earlier. With the two tower sales removed, office transactions totaled just $165 million, still a significant increase from the previous year but not exponentially greater.
The outsized impact of the two office sales was further underscored by more normal transaction volumes in the second quarter.
Office transactions fell back to $89.6 million on a volume of 10 deals, while total investment totaled $1.25 billion, double what changed hands a year earlier. Transaction volumes increased to 182 from 125 a year earlier.
Despite slowing in the second quarter, commercial investment was broad-based, with industrial and multifamily deals topping the rankings.
The strength of industrial isn’t unique to Calgary, with Edmonton also seeing activity in the sector pick up as vacancies fall and institutional investors reallocate funds to these assets.
“A resurgence of more traditional industrial uses have resulted in investors pursuing industrial assets not only within Calgary, but also in surrounding communities such as Airdrie and Balzac,” Altus reported.
Key deals include Concert Properties Ltd.’s acquisition of 111 Lowes Road, a newly built 1.2 million-square-foot warehouse and distribution centre in Balzac. Highfields Investment Group sold the property for $133.8 million in April 2022.
The deal, little more than a tenth of the size of the Bow transaction, was the largest deal of the quarter and highlighted the return to more normal activity. This was reinforced by the second-biggest industrial deal of the quarter, Anthem Properties Group’s purchase of 3201 Ogden Road SE, a 195,585-square-foot multitenant industrial building built in 2007, for $35.1 million from the Mancal Group.
Occupants of the property at the time of sale included long-term tenants Coast Appliances, Daltile and Steel-Craft Door Products.
But industrial space means jobs, and with the economy in Calgary and Alberta positioned for growth as commodity prices rise and new companies seek space in the province, multifamily rental properties are also attracting interest.
Buyers purchased $214 million worth of multifamily properties in the quarter, up 39 per cent from $154 million a year earlier.
“The investment dollar volume for multi-family residential in the second quarter of 2022 was the most recorded since the fourth quarter of 2018,” Altus reported. “Investors appeared to be taking note of the higher levels of net migration to Alberta that really started to accelerate in the third quarter of 2021.”
Colin Johnston, president of research, valuation and advisory at Altus Group, believes the multifamily sector may be the strongest element of the Calgary market given uncertainties in other areas of the economy.
“I still feel relatively bullish on purpose-built apartment buildings and multifamily. There’s such strong fundamentals there,” he said. “We’ve underbuilt apartment buildings for a decade, so we have a lot of catch-up to do, so the fundamentals remain strong.”
Strong growth in rents point to the resilience of the market. According to Rentals.ca and Bullpen Research and Consulting, the average one-bedroom rent in Calgary increased 29 per cent over the last year to $1,625 a month in September. A two-bedroom apartment increased 21 per cent to $1,895 a month.
Yet the city remained relatively affordable on the national scene, ranking 24th out of 35 cities surveyed.
The strength is attracting investors keen to reposition existing properties – most notably underutilized office space – for multifamily use.
“I think that’s a great opportunity to repurpose buildings that are not going to be competitive going forward, older B and C office buildings – into apartments, some of which will be more affordable,” Johnston said.
Andrew Petrozzi, director, commercial research for Western Canada with Altus expects the sector to benefit as investment continues to pour into industrial assets and others.
“While the focus of investors is expected to remain on industrial properties through 2022, positive migration trends will also likely drive investors to further consider the acquisition of apartment buildings and retail assets,” he said. “A slow shift in investor perceptions of Calgary appears to be underway and what remains to be seen is whether any economic or political upheavals could derail that progress.”
