The strength of the industrial real estate market in Calgary has been further demonstrated with Mancal Properties‘ acquisition of the three-building Deerpoint Tech Centre in the northern part of the city near Calgary International Airport.
Casey Stuart, senior vice-president, JLL Capital Markets, which acted on behalf of vendor Mackenzie Investments, said the property was purchased by Mancal, a privately owned real estate company in Calgary, for $31.5 million. The buildings comprise 181,531 square feet of leasable space.
“It’s 100 per cent leased. There’s a total of 12 tenants in place. The largest tenant is Attabotics,” Stuart told RENX in an interview. “It’s mostly local distribution. Attabotics does design and manufacturing, but they’re the only manufacturer in the complex.”
He said the name of the complex was branded in 2001 when it was built by Remington.
“I think they did that to differentiate it a little bit. That area is kind of flexy,” Stuart explained. “So you’ve got a lot of office up there. You’ve got Deerfoot City mall, so it’s kind of a flex, it’s not a heavier industrial.
“The northeast is really characterized by a higher proportion of office and retail versus the southeast industrial area.
“This is still very functional product. It’s 20 years old now but it still accommodates 53-foot trailer access in and out. You’ve got good relevant clear heights in the warehouse – 20- to 24-foot clear heights which is not the current standard.
“If you’re building this today you’d probably build it with higher ceiling heights, but it’s still functional given the tenant sizes.”
Deerfoot Tech Centre generates strong returns
Stuart said the property has also generated strong, consistent returns over the years.
“It’s performed really well. The rents have been really stable, they’ve increased,” Stuart noted.
“The Calgary market appeals to buyers because our average net rents are the lowest of all major Canadian markets. So there’s a lot of perceived upside in industrial rents in Calgary.”
Although vacancy rates are on the rise in the region after several years of very low availability, Stuart said interest and demand continue to be strong so he expects a continued increase in leasing rates.
“We do believe we will see rents increase next year again. Vacancy is on the rise – we’re at two per cent and rising. I think with the large run-up in rents that we’ve seen over the last three years, rents are not going to rise at the same level that they have, but there’s still going to be an increase.”
He said returns on this type of real estate in Calgary are better than what they would be in markets like Toronto or Vancouver, and Calgary is considered to be a relatively stable market for light industrial real estate.
“There’s a lot of buyer interest in Calgary, from U.S. purchasers to Toronto-based to local and Vancouver-based buyers. Our market is seen as a growth market. We have excellent infrastructure with rail, air and ground transport,” Stuart said.
Many factors make Calgary attractive
Land prices are also much lower than in other major Canadian centres.
“So it’s seen as a value market that’s stable and growing and will continue to grow. We’re likely to see a higher proportion of absorption in our market because Vancouver is so expensive and it’s hard to find space,” he said. “So I think we’re going to see a lot of flow from Vancouver businesses.
“We’ve gone through three years of very tight dynamics, tight vacancy, rising rents. That is now loosening up.
“There’s a healthy pipeline of new construction coming that’s going to alleviate the stress on certain sectors from a tenant perspective, but we’re still not at a place where we’re seeing any type of concern or really large worry upcoming in the future.
“We’re not heavily dependent on one sector as we were 20 years ago, being the oil and gas sector. We’re seen as a pretty diversified and safe market overall. We have a lot of optimism in the years ahead for Calgary industrial.”
JLL’s Q3 data showed there was over a million square feet of new construction delivered in the market. Much of that consists of big box product delivered by One Properties and CT REIT (approximately 350,000 square feet apiece).
Pre-leasing remains strong and is expected to increase into Q4 as forecasts indicate an additional 2.8 million square feet completed. About 1.3 million square feet or 46 per cent is leased.
JLL forecasts total annual net absorption to be in the 3.5-million-square-foot range by the end of Q4, in line with the historical average of 3.45 million square feet.
Net rents rose in Q3
Average asking net rental rates in Q3 rose to $10.89 per square foot, an increase of $0.12 per square foot over Q2 and an increase of $0.39 per square foot or 3.7 per cent year-over-year.
“Annual rate escalations have become a common expectation by landlords as demonstrated by the majority of recent lease transactions. Regardless of the rapid rise in interest rates, demand for owner/user sales remains high as there is very limited inventory available on the market,” the report states.
“Interest rates have not had a material impact on activity in the market for owner user sales to date as the market remains tight. Outlook companies from Vancouver and Toronto continue to expand into the Calgary and the GCA market to capitalize on favorable rents and location in comparison to the other major Canadian cities.”
“Furthermore, as commercial driver regulations limit drive time to 13 hours in a 24-hour period, many companies have chosen Calgary to serve as their distribution hub to service other major Canadian cities such as Vancouver, Edmonton, and Winnipeg within the same day drive time requirement. This positions Calgary well for continued future growth.”
Mancal did not immediately reply to requests from RENX for comment about the acquisition.
