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Wednesday, March 9, 2011

Investment Rebounds in Calgary's Commercial Real Estate Market

Avison Young’s 2010 Investment Review highlights and confirms what we have witnessed in the Calgary commercial real estate (CRE) market for a number of months now, which is a reignited interest in investment product of all sorts, including properties with varying and divergent risk profiles.

Total investment in the Calgary commercial real estate market in 2010 was $1.8B, up 30% from 2009, with the retail sector accounting for the largest volume component at $666M. The increase in activity is directly correlated to the abundant supply of debt in the market at historically attractive rates. Furthermore, stability in the leasing market of all major asset classes has renewed fervour in Calgary’s CRE market to a level not seen since the peak years of 2006/2007.

Since 2009, interest in Calgary’s office investment market has been focused on top-quality assets with predominantly low risk profiles. This focus was driven by scepticism in Calgary’s leasing market which seemed to be waiting for a 20% vacancy to hit while net effective rates continued to plummet. As the Avison Young Q4 2010 Office Market Report explains, these projections have proven to be inaccurate as Calgary had an incredible amount of absorption in 2010. Although vacancy will creep up over the next two years, as the last of the downtown office developments come on stream, almost across the board market participants are revising their vacancy projections downwards towards Calgary’s historical norms.

What I find most telling of the quality and strength in Calgary’s CRE market today is the breadth of investors looking for value-add opportunities, and the willingness of these groups to take on short term vacancy and/or lease rollover risk. This is an occurrence that the Calgary CRE investment market has been practically void of since the downturn in late 2008 and one that I see as a harbinger of positive news for the market.

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