Kaile Landry is a leasing and sales associate with the industrial division at Barclay Street Real Estate Ltd. in Calgary.
What’s your feel of the current industrial real estate market in Calgary?
Landry: A large part of my business comes from very specific industries such as oil and gas manufacturing, fabrication, welding, truck service and rental companies. I have experienced some major optimism recently from a leasing and buying standpoint. This is paralleled in the steady decrease since the second quarter of 2018 in vacancy rates for existing inventory in the industrial sector.
The distribution and warehousing sector has been the largest driver for this growth, further diversifying the local industrial market. The companies that used to drive this growth were those in the oil and gas service sector and that is no longer the case. For the energy sector as a whole, there’s little work domestically with very tight margins. Any companies that have branched out to the U.S. or are global are thriving. Strictly domestic companies are struggling to survive.
The question today is how much depth the distribution sector has and will the oil and gas service sector come back with a change in our provincial government?
What are the most popular areas businesses are seeking out and why?
Landry: Keeping in mind my typical client’s business, I have seen a rise of interest levels in the Foothills Industrial, Shepard Industrial and surrounding Rocky View County areas. As we know, Rocky View County has no business taxes and lower property taxes than Calgary, which seems to be a big driver in where these business owners want to set up shop.
As of this year, however, business taxes will be eliminated in Calgary as the plan over the last few years was to phase out business tax through a gradual transfer to non-residential property taxes. With this happening, investors and landlords are the ones challenged as the operating costs are rising significantly compared to what they are outside the city. This will result is downward pressure on rents as tenants in the city cannot incur year-over-year increases to their operating costs and gross rent. The impact is evident as we have more clients than ever before clearly saying they want to relocate outside the city limits due to affordability challenges.
What about the size of product? What’s trending today and why?
Landry: The trend lately has been a larger influx of cannabis production companies (15,000 to 100,000-plus square feet), including, more recently, processing and packaging smaller shops for white label products around 3,000 to 5,000 square feet. Like the craft beer market that we saw two to three plus years ago, we will likely see the same with craft growers and processors this year and into 2020.
The other trend has been within warehousing and distribution. Calgary and surrounding areas have gained some momentum with medium to large national and global companies.
As for construction, there has been growth in large bay distribution facilities and industrial condo developments. There was over three million square feet of new construction in 2018, which far exceeds the construction we saw in the previous three years. With growth in the distribution sector, this level of construction will likely be seen throughout 2019 and into 2020.
The cost to operate is increasingly difficult in Vancouver so many companies are looking to relocate or increase their presence in Calgary, where the cost to operate is significantly less. I have also seen a rise in the number of clients and developers acquiring land and design-build requirements, as the number of single-use facilities has diminished since January 2017 when we hit our peak industrial vacancy of 7.9 per cent.
With vacancy dropping over the last two years, there are fewer facility options, which is also driving an increase in owner user construction, especially for service and manufacturing companies.
In residential real estate, more people are starting their search online. Is that happening as well in the industrial real estate industry? And if so, what are the pitfalls?
Landry: This is where it gets interesting, and I can go on all day about this topic, but I will try to keep it short. I get the question at least once a week: “Why is it so difficult for me to find commercial space for my business, and why do I have to work with an agent?”
Realtor.ca, formerly known as MLS, has been utilized for years and years by primarily residential brokerages. However, because commercial real estate has many more hurdles to navigate, especially for the majority of businesses that will lease, it cannot be done easily. Understanding a client’s needs involves understanding ceiling heights, loading requirements, power requirements, makeup air requirements and sprinkler requirements, just to name a few. This cannot be figured out by clicking on some boxes on a website.
Almost all the exclusive commercial brokerages in Calgary operate their own research department for collecting and managing available product and transaction information. As a result, without a broker, if you are looking for a building or bay to lease, you can look online and find maybe five to 15 per cent of what is actually available. I always encourage business owners and startup companies to speak with a commercial associate that specializes in a certain area of the market. For instance, if someone is looking for retail, hire an associate who exclusively works within retail leasing. And the same goes for industrial, downtown office, suburban office, investments assets.
When I have this discussion with clients, most don’t know there are so many specialists and it’s a major advantage to have a specialist assist you. I am more than happy to refer business on to other agents who I know do a great job in their niche market, if it doesn’t pertain to the industrial market that’s my specialty.
Additionally, the Real Estate Council of Alberta made some changes last year that no longer require a licence in an area you don’t specialize in. With this in mind, I encourage all consumers to review RECA’s website to confirm if their chosen agent has the authority to trade in the area you are searching in.
What do you expect the market will be like for the rest of this year?
Landry: Anecdotally, I would say very cautious, especially from the smaller and newer businesses, until the provincial election is behind us. My team has seen over and over that the City of Calgary is making it quite challenging to obtain development permits and building permits, with unexpected issues and requirements being put in front of them, many having significant cost implications.
The environment is very anti-business, which further drives businesses to leave the city and relocate to Rocky View County.
Post-election, everything we know and see could change for the better. There’s a lot of frustration with business owners as there are hurdles to relocate or set up in the city.
That being said, the great thing about business owners in my industry is how dynamic and resilient they are, and despite the challenges, most of the time we are able to assist our clients in getting things resolved. We still see some positivity in the market and that will either grow or be extinguished depending on the results of the provincial election.
We need companies to get out of a ‘survival mode’ mindset and be able to focus on growth and prosperity.
The energy sector and pipeline discussion also impacts the confidence of the entire business community so there’s a lot up in the air causing pause today.
– Mario Toneguzzi for Calgary’s Business