Calgary is a major economic hub in western Canada. In recent years, the decreased demand for office space in the downtown core has impacted Calgary’s real estate market. However, the city’s economy has been showing signs of recovery, and the demand for commercial and industrial real estate and commercial property sales are expected to increase in the coming years.
2024 is set to present both challenges and opportunities. According to CRBE, improvements are expected in liquidity and capital costs, although mortgage renewals may still lead to higher borrowing costs. Beyond the commodities sector, the fundamentals for office leasing remain strong. Additionally, population growth, which directly influences demand for all types of real estate, is anticipated to be higher in Canada than in any other G7 country.
Economic growth is expected to slow down and rebound this year as highly-anticipated cuts come for interest rates. Inflation is still a primary concern in the short term, but the future is still very bright in the long term.
Record Migration
Last year, Alberta witnessed some of its highest migration levels on record, driven by both international and interprovincial movements. As of October 1st, the latest data shows Alberta’s population surged 4.3% over the preceding 12 months. Specifically, the population grew by 1.3% in the third quarter, adding 56,306 residents—36,212 from international immigration and 17,094 from interprovincial migration.
It’s important to note that the reported interprovincial figure reflects a net number. 29,129 people moved to Alberta during Q3, but this number is adjusted by subtracting those who left, resulting in a lower net migration figure. Compared to the same quarter the previous year, total arrivals were down by 6.9%, although the number of departures decreased more significantly by 11%, indicating a trend of fewer people leaving Alberta.
Calgary has significantly contributed to this growth, accounting for more than 50% of Alberta’s population increase in 2023. However, forecasts by the Calgary Real Estate Board suggest a slowdown in 2024, with population growth in Calgary expected to decrease from 4.7% in 2023 to an estimated 3.6% in the following year.
A higher population means more demand for commercial real estate in Calgary for excited entrepreneurs and established business owners.
Interest Rate Cuts on the Horizon
The Bank of Canada confirmed that interest rate hikes have ceased following a sharp increase over the past two years. The central bank is now evaluating how long the current high interest rates must be maintained to control inflation effectively. With the policy interest rate reaching 5.00% and signs of economic pressure emerging in Canada, there is growing speculation about the timing of potential rate reductions.
Inflation remains the central concern for the Bank of Canada, persisting above the target level. The core inflation metrics, crucial to the bank’s assessments, have not consistently decreased, which would justify lowering interest rates. Recent data has been inconsistent and has slightly delayed predictions for rate cuts in 2024.
The Bank of Canada predicts that inflation will stabilize around 3% in the first half of 2024, then slowly decrease, reaching the 2% target by 2025. If inflation follows this path, economists expect interest rates to drop in late Q2 2024, decreasing by 100 basis points to 4.00% by year-end.
Calgary Continues to Diversify
Calgary has long been known as an energy hub, with the oil and gas industry playing a significant role in the city’s economy. However, in recent years, the city has been actively working to diversify its economy and attract investment in new industries. Some of the key sectors that Calgary is targeting include:
- Technology
- Logistics
- Distribution warehouses
- Film and television
- Tourism
- Financial services
With this diversification, Calgary’s industrial sector experienced its most remarkable year in recent history, and the positive trend is projected to extend throughout 2024. Calgary’s industrial real estate market remains favourable due to pent-up demand and the announcement of new distribution warehouses. The city’s central location and cost advantage contribute to its ongoing appeal compared to other markets.
Highly Personalized Office Spaces are Critical Investments
Historically, office tenants were responsible for personalizing their spaces with amenities like breakout rooms and coffee bars. Now, landlords also play a crucial role in providing distinctive amenities to attract and retain tenants. In today’s competitive market, with high vacancy rates, a strong amenity offering is essential for landlords to differentiate their properties.
Calgary has been a pioneer in embracing office buildings with amenities, a trend that began during the 2014-15 downturn. In 2024, other cities are expected to follow Calgary’s example, adding features like tenant lounges to their buildings. These upgrades, while costly, are seen as investments in the long-term viability of a property portfolio. Additionally, retrofitting amenities while tenants are in place can help offset some costs through recoveries.
Office Market Shows Improvement
The latter half of 2023 witnessed significant office leasing activity driven by mergers, acquisitions, and companies either renewing their leases or relocating. Due to shorter commute times, Calgary has a higher office attendance rate than other major cities. Meanwhile, the City of Calgary has temporarily halted its office conversion program to evaluate its effectiveness in reducing office vacancies and providing housing.
Industrial Sector Slows Down
After a busy period from 2021 to 2023, the industrial market in Calgary is now experiencing a slowdown. Demand from large bay distribution center users is decreasing noticeably, a trend observed across North America. Currently, 20 industrial projects are being constructed on speculation in Calgary, with satisfactory pre-leasing activity. However, a rise in availability and a drop in demand are anticipated moving forward.
Blog posts from CMS Real Estate are for general information only. The content should not be considered real estate management or investment advice. If you are in need of professional commercial and industrial real estate advice, please contact our team.