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Sunday, September 10, 2017

Strong demand lifts Calgary retail property values


By Kevin Morgans, Walsh Mannas and Ryan Swelin (Calgary)

Demand in Calgary’s retail real estate investment market continues to strengthen even as values approach all-time highs, capitalization rates compress and lease rates and occupancy levels remain strong.

Through large institutional-quality asset sales and small private-to-private transactions, Avison Young has been one of the most active groups in brokering retail asset transactions in the Calgary market.  This activity has kept us at the forefront of this trend line and allowed us to track the investment metrics changing quarter-over-quarter and almost week-over-week. The strong demand has led to multiple-bid scenarios, putting more upward pressure on property values as groups compete to control assets.  We have also seen interest come in from investors in Vancouver and Toronto as they pursue risk-adjusted returns not available to them in their home markets.

Since major enclosed malls and regional power centres rarely come to market, investors’ focus has been on strip centres along main thoroughfares and mature neighbourhood centres. The centres that have traded recently are all well-performing assets with multiple opportunities to increase returns through such value-add strategies as façade renovations, pad development, re-tenanting, long-term site redevelopment and/or densification.

One key factor in the upswing has been a consistent, record-breaking rise in Alberta’s monthly retail sales. As indicated in the graph below, sales have broken the previous record of $6.72 billion set in October 2014 every month this year (as of June 30) since March, with June sales reaching $7.15 billion. 



This is not to say that there is not pain being felt in Calgary’s retail market.  Downtown retail correlates directly to the strength of our office market, which still sits with a vacancy level at heights not seen in decades.  Restaurants and bars that once catered to the downtown crowd have been the most obvious casualties with a number of new entrants and landmarks closing their doors this year.

We predict that the remainder of 2017 will see retail real estate investors continue to chase well- positioned assets with more opportunistic buyers taking a serious look at downtown and inner-city opportunities to really try and add some value.

Kevin Morgans, Walsh Mannas and Ryan Swelin are Vice-Presidents in Avison Young‘s Calgary office and co-lead the capital markets group in Calgary.


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