Calgary commercial real estate market update – Q2 2024

Calgary experienced a 32% increase in investment volume year-over-year, with a substantial increase in activity observed in the multi-family sector

The Calgary market recorded $2.7 billion in dollar volume transacted through the first half of 2024, up 32% compared to the same period last year. Demand for multi-family assets remained strong as Alberta’s population reached 4.8 million as of Q2 2024, a 4.4% increase year-over-year (YoY). The multi-family sector comprised 27% of the total investment volume and experienced a 130% YoY increase. According to Altus Group’s latest Canadian CRE Investment Trends Survey, Calgary’s top property type was suburban multiple-unit residential.

Figure 1 - Property transactions – All sectors by year

The Calgary market continued to see strong demand for multi-family products in Q2, with $744 million in dollar volume transacted, a 130% increase YoY. Strong population growth and the soaring demand for housing have led to the market observing higher start levels in the first half of 2024. Despite the construction boom in Calgary, prospective homeowners and tenants continued to be challenged by housing affordability, as inventory in the lower price ranges remained limited.

The retail sector reported $580 million in dollar volume transacted, a 46% increase YoY. While inflation has gradually come down, the rising cost of living has become a major concern amongst Canadians. Community shopping centres, power centres containing grocery anchors, and big box stores have continued to thrive as consumer spending has shifted towards essential goods and services in response to unfavourable economic conditions. Retail transactions for properties such as Royal Oak Park, Royal Oak Place, The Quarry, and Seton Gateway Shopping Centre are a few examples of this ongoing trend.

The office sector posted $111 million in dollar volume transacted, a 46% decrease YoY as demand continued to weaken. The Calgary market continued to spearhead office-to-residential conversions, with the first building, The Cornerstone, a mixed-use development featuring 112 residential units located in the city’s downtown. As rightsizing efforts continued in response to the popularity of the hybrid work model, Altus Group’s latest Canadian office market update revealed that Calgary’s availability rate decreased by 230 basis points to 22.6, YoY, the largest decline observed for all Canadian major markets. As of Q2 2024, Calgary had no new office completions but still has two office buildings under construction, totaling 129,472 sq. ft., with 74.6% of the space available.

The demand for industrial assets in the first half of 2024 softened after three consecutive quarters of record-breaking industrial completions in 2023. According to Altus Group’s latest Canadian industrial market update, Calgary’s availability rate increased by 170 basis points to 6.1% YoY. As demand stabilized and industrial land prices rose, investment and construction activity slowed in response, with $357 million in dollar volume transacted, just an 8% increase YoY. Furthermore, Calgary saw 904,227 square feet of completed space in the second quarter (with 55% pre-leased), and over two million square feet of space is under construction, with nearly half of the space committed.

Growth in the land sector has been primarily driven by residential land sales, with nearly $2.7 billion in dollar volume transacted, a 32% increase YoY. The residential land sector posted $480 million, while ICI land posted $302 million, an 84% increase and a 2% decrease respectively, YoY. With record-breaking international and interprovincial population growth, interest in residential land assets is expected to persist to meet the market’s housing needs. Moreover, in Q2 2024, Calgary launched its new industrial land development program, Constellation. The Constellation Industrial Park spans 600 acres and is connected to vital transportation hubs. Despite elevated construction costs, the program would offer new opportunities for industrial developments of varying lot sizes and operations.

Figure 2 - Property transactions by asset class (Q2 2023 vs. Q2 2024)

Notable Q2 2024 transactions

505 4th Street SE (Arris Residence East) - Apartment

With a sale price of $88.4 million, Bosa Developments divested the Arris Residences East apartment in June 2024. Manulife purchased the 190-unit, 24-storey high-rise building for a price per unit of over $465,000. Although the complex contains two apartment towers completed in 2021, the purchase only involved the eastern tower. Situated in Calgary’s burgeoning East Village neighbourhood, the sale represents the second quarter's largest apartment transaction and the quarter's largest transaction across all commercial asset classes.

8650 112th Avenue NW (Royal Oak Park) – Retail

Consisting of a ten-building, 106,000-square-foot retail complex, Calgary-based Certus Developments sold the Royal Oak Park shopping centre in June 2024. Acquired for a whopping $55 million in June 2024, Salthill Capital bought the community shopping centre, which sits on nearly 10 acres of land, for a price per square foot of $519. This acquisition was Salthill Capital’s fifth Calgary-area purchase over the last three years and represented the largest retail transaction of the second quarter.

11440 & 11445 178th Avenue SE & 11885 189th Avenue SE – Residential land

Genesis Land Development Corp. purchased 303 acres of land on Calgary’s southeastern periphery from private landowners in May 2024. Comprised of three parcels, this large swath of undeveloped farmland is expected to be assembled with surrounding parcels. Transacting for nearly $34.8 million, the sale represents the largest land transaction of the second quarter. The land is expected to be part of a long-term subdivision development play.

711 4th Street SE (Hilton Garden Inn & Homewood Suites Calgary Downtown) – Hotel

Manga Hotel Group purchased the site for $57 million in May 2024. Constructed in 2016, this uniquely built two-in-one hotel complex consists of a Hilton Garden Inn and a Homewood Suites interfacing on the same land parcel. Timbercreek Asset Management disposed of the property, which represented Manga Hotel Group’s first Alberta acquisition, the largest hotel transaction of the quarter, and the fourth largest in the Calgary region in the last five years.

Figure 3 - Overall Capitalization Rate trends – 4 benchmark asset classes

Conclusion

The Calgary market has remained resilient amid elevated interest rates. It is poised to be a top-performing market in 2024, as rate cuts should create favourable tailwinds for the market. As of Q2 2024 YTD, multi-family comprised nearly a third of the total investment volume, with retail following closely behind, driven by strong demographic and economic fundamentals.

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