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.
