Industrial Insight Report. Calgary & Area Q4 2016

Transcription

1 Industrial Insight Report Calgary & Area Q4 2016

2 Table of Contents Calgary & Area Overview 1 Calgary & Area Map 2 Submarkets Northeast & Balzac 3 Southeast 4 South Central 5 Contacts 6

3 Pricing Demand Supply Market Update Calgary & Area Q Tenants seek opportunity as the Calgary & Area recovers from economic downturn OPEC deal to cut production resulting in positive effects on local economy The Organization of Petroleum Exporting Countries (OPEC) entered into a landmark deal in September to decrease the production of oil by approximately 1.2 million barrels a day. The deal was the first of its kind to be agreed to in over eight years and it immediately had an effect on global energy markets. The price of WTI averaged $49.05 a barrel in the fourth quarter of 2016 and has eclipsed $50 in early With the OPEC deal in place and the recent renewal of the Keystone XL project, the market has shown positive growth over the past year recovering from the below $30 a barrel prices seen in January The Alberta economy is in a slow recovery mode with several positive signs arising, including forecasts showing that Calgary s real GDP is expected to rise by two percent in We anticipate that the Calgary & area s industrial market will continue a slow rebound and show positive results in Trending towards recovery Net absorption, of a negative 82,480 square feet for the quarter was relatively neutral for market standards. The quarterly climb in vacancy that the market has witnessed over the past two years is beginning to slow down, increasing by only three basis points since Q3; a decrease from the 110 basis points increase seen at this time a year ago. Statistics aside, the market showed renewed interest and activity in Q4 indicating the early stages of recovery. Manufacturing space that has been vacant for an extended period of time has had increased tour activity and transactions are beginning to occur in this type of inventory. Manufacturing facilitates have been actively toured in the last few months concluding in some recent condition deals. Development slows down Only 344,360 square feet of new development was delivered in Q4; a sharp decrease from the almost three million square feet constructed in Q New development is likely to remain relatively idle for 2017 as landlords and developers wait for both new and old product to be absorbed. The idle activity in the development sector is due to the economic downturn along with the supply of seven million square feet of new development since Q being brought onto the market. Many developers, with approved permits in hand, are waiting for the right time to move forward with construction to be first to market. Key market indicators 12-month rent growth (%) -2.5% Arrows represent change from prior quarter Net new supply, net absorption, vacancy 4,000,000 3,000,000 2,000,000 1,000,000 sf 0-1,000,000 Average net asking rate $10.00 $9.80 $9.60 $9.40 Total inventory (sf) 153,175,004 Total vacancy (%) 7.8% Total availability (%) 9.4% Q4 net absorption (sf) -82, net absorption (sf) 615,930 Average net asking rate $9.57 Net new supply Total vacancy 2,257 Net absorption $ % 7.5% 7.0% 6.5% 6.0% RECENT SALES COMPARABLES (sorted by square feet) Buyer Seller Location Intersection Size (sf) Date Price / sf TELUS Corporation Strategic Group th Avenue NE 27 th Avenue NE 217,751 10/05/2016 $105 PIRET Holdings Artis REIT th Street S.E. 48 th Street SE 142, /11/14 $112 RECENT LEASE COMPARABLES (sorted by square feet) Tenant Landlord Location Intersection Size (sf) Lowe's Oxford Properties th Avenue NE 104 th Avenue NE 151,000 Archway PIRET Holdings 21 Aero Drive NE Aero Drive NE 136,476 JLL Market Update Greater Calgary Area Q Page 1

4 MARKET CHARACTERISTICS Initial recovery showing in manufacturing space 1 Tenants taking advantage of increased inventory 2 Sales volume records another quarter of positive activity overall in continued low interest rate environment 3 Lease transactions remain steady despite first quarter of negative absorption in MARKET STATISTICS Property type Total inventory (sf) Total vacancy (%) Total availability (%) Q3 total net absorption (sf) 2016 total net absorption (sf) Average direct asking rent ($ psf) Under construction (sf) YTD completions Warehouse / Distribution 107,495, % 10.5% -104, ,480 $ ,000 2,715,489 Manufacturing 22,812, % 7.2% -51, ,800 $ ,128 79,363 JLL Market Update Greater Calgary Area Q Page 2

5 Pricing Demand Supply Northeast & Balzac Lease Activity The Northeast and Balzac areas were more active this quarter with an increase of ten transactions from last quarter for a total of 64 transactions in Much of the activity in the region was concentrated around the airport, including the largest transaction this quarter, a renewal completed by Walmart for their 436,263 square foot distribution center at th Street NE. PIRET also completed a lease deal with Archway for 136,000 square feet at 21 Aero Drive NE. Lack of new supply in this area also increased absorption rates pushing big box tenants into the excess supply created back in Q2 and Q4 of 2015, whereby over one million square feet of space was constructed in each quarter of that year. Key market indicators Total inventory (sf) 46,879,601 Total vacancy (%) 10.7% Total availability (%) 12.5% Q4 net absorption (sf) 400, net absorption (sf) 863,600 Average net asking rate $ month rent growth (%) -1.8% Arrows represent change from prior quarter Rental Rates Asking rates decreased marginally this quarter due to the amount of available space driving increased competition among landlords. As the Alberta economy continues to rebound, we anticipate these rates to stabilize and begin a positive recovery throughout Sales The average sale price per square foot in the Northeast significantly increased moving to $221 per square foot, which was driven by the number of sale of smaller buildings in the area with a total of seven sale transactions in the this quarter. TELUS corporation represented the largest acquisition, purchasing a 217,000 square foot facility at th Avenue NE while Enerflex also sold its 76,000 square foot facility this quarter. Net new supply, net absorption, vacancy Net new supply Net absorption 1,200,000 Total vacancy 800, ,000 sf 0 Average net asking rate $ % 11.0% 10.5% 10.0% 9.5% Construction Construction has remained marginally slow with just 248,000 square feet currently underway. This is due to the large volume of vacant space currently on the market combined with skepticism over economic stability. Moving into 2017, the construction of Airport Crossing s (Enright/Sunlife) second phase is expected to commence construction in late Q1 of this year and will consist of two buildings totaling 246,000 square feet. $9.40 $9.30 $9.20 $9.10 2,257 RECENT SALES COMPARABLES (sorted by square feet) Buyer Seller Location Intersection Size (sf) Date Price / sf TELUS Corporation Strategic Group th Avenue NE 27 th Avenue NE 217,751 10/05/2016 $105 Piret Holdings Inc. Artis Horizon II Ltd th Street NE 29 th Street NE 96,804 11/14/2016 $113 RECENT LEASE COMPARABLES (sorted by square feet) Type Landlord Location Intersection Size (sf) Renewal One Properties th Street NE 18 th Street NE 436,263 New Oxford Properties th Avenue NE 104 th Avenue NE 151,000 New PIRET Holdings 21 Aero Drive NE Aero Drive NE 136,476 JLL Market Update Greater Calgary Area Q Page 3

6 Pricing Demand Supply Southeast Lease Activity Nearly 40 transactions were completed in Calgary's largest industrial market totaling 330,000 square feet. Large transactions were rare this quarter, which created a decrease in absorption rates. As oil begins to rebound combined with the recent re-opening of negotiations around the Keystone XL pipeline project, industrial companies in this sector may experience an increase in business activity, creating increased activity in our market. Rental Rates Rental rates continued to decrease in response to the increased supply available in the Southeast. A slight transition from larger, older buildings to newer, readily available spaces that were built through 2015 into the beginning of This transition and excess available space has caused landlords to continue to drop rates in order to encourage transactions in this type of product on the market. We anticipate these rates to stabilize throughout 2017 as the supply of industrial inventory starts to decrease and the market becomes more competitive. Sales Similar to last quarter, the Southeast remained strong in industrial sales. The quarter was highlighted by the sale of a 142,672 square foot fully leased facility on 48 th Street SE along with the completion of 13 additional sales. These sale transactions totaled approximately $34,000,000 with an average price per square foot of $189. This reflected a slight decrease in activity compared to Q3, which is traditionally a more active quarter in the real estate market overall. Construction The Southeast brought on 280,000 square feet of new construction this quarter. This amount reflects nearly one tenth of the new construction that existed at this time last year, though still indicating a positive trend in this sector. Key market indicators Net new supply, Net absorption, vacancy 2,500,000 1,500, ,000 sf -500,000 Average net asking rate $9.80 $9.60 $9.40 $9.20 $9.00 Total inventory (sf) 65,171,264 Total vacancy (%) 6.5% Total availability (%) 9.0% Q4 net absorption (sf) -238, net absorption (sf) 253,350 Average net asking rate $ month rent growth (%) -5.6% Net new supply Total vacancy Arrows represent change from prior quarter 2,257 Net absorption $ % 6.0% 4.0% 2.0% 0.0% RECENT SALES COMPARABLES (sorted by square feet) Buyer Seller Location Intersection Size (sf) Date Price / sf PIRET Holdings Artis REIT th Street SE 48 th Street SE 142,672 11/14/2016 $112 Hungerford Properties SAIT 2015 Centre Avenue SE Centre Avenue SE 109,326 10/17/2016 $46 RECENT LEASE COMPARABLES (sorted by square feet) Type Landlord Location Intersection Size (sf) New Cresa th Street SE 48 th Street SE 41,711 New PIRET Holdings th Street SE 48 th Street SE 32,245 JLL Market Update Greater Calgary Area Q Page 4

7 Pricing Demand Supply South Central Lease Activity The number of transactions in the South Central area were strong this quarter totaling 40. Most notable being 26,000 square feet completed at 5716 Burbank Road SE and 25,000 square feet at th Avenue SE. Absorption rates were still negatively impacted overall with several subtenants vacating the market, including 53,000 square feet at th Street SE. This, along with other major vacancies, led to the negative absorption seen this quarter as well as the increased vacancy and availability rates. However, some of these vacancies have since been absorbed in Q1-2017, indicating that absorption rates should see a recovery in the first quarter. Key market indicators Total inventory (sf) 23,272,165 Total vacancy (%) 4.9% Total availability (%) 7.7% Q4 net absorption (sf) -241, net absorption (sf) -388,810 Average net asking rate $ month rent growth (%) -9.8% Arrows represent change from prior quarter Rental Rates Rental rates decreased further into the fourth quarter as a result of the operating costs associated with older inventory in the area. Operating costs in the area average $6.50 per square foot, which is significantly higher than the Calgary average of $4.17 per square foot. For any cost sensitive tenants, this area is less desirable due to these costs. Sales The average asking rate per square foot saw an increase over last quarter from $213 to $246 per square foot. This increase was mostly due to a preference for paying a premium for newer, smaller buildings in the area over the more larger aged inventory. We expect to see some increased activity in this sector as the asking prices have decreased enough to consider renovating or demolishing and rebuilding buildings on valuable centrally located industrial land. Net new supply, net absorption, vacancy 100,000 Net new supply Net absorption Total vacancy sf 0-100, , ,000 Average net asking rate Construction Currently, there are not any active speculative projects underway throughout the $11.00 $10.50 Southcentral region. One private construction building is under construction, $10.00 which will bring 22,000 square feet onto the market this year. $9.50 2,257 $11.50 $ % 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% RECENT SALES COMPARABLES (sorted by square feet) Buyer Seller Location Intersection Size (sf) Date Price / sf Alberta Ltd. Nowel Properties Ltd th Avenue SE 44 th Avenue SE 31,666 11/15/2016 $147 EFNA Holdings Inc. All Season Services Inc rd Avenue SE 53rd Avenue SE 10,252 10/14/2016 $239 RECENT LEASE COMPARABLES (sorted by square feet) Type Landlord Location Intersection Size (sf) New Mancal Properties Inc Burbank Road SE Burbank Road SE 26,353 New ALBERTA Inc th Street SE 16 th Street SE 24,911 JLL Market Update Greater Calgary Area Q Page 5

8 About JLL JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $4.7 billion and gross revenue of $5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in Its investment management business, LaSalle Investment Management, has $55.3 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit About JLL Research JLL s research team delivers intelligence, analysis, and insight through market-leading reports and services that illuminate today s commercial real estate dynamics and identify tomorrow s challenges and opportunities. Our 415 professional researchers track and analyze economic and property trends and forecast future conditions in over 75 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions. For further information, visit Office locations: TORONTO 22 Adelaide Street West, Suite 2600 Toronto, ON M5H 4E3 Tel: Fax: TORONTO NORTH 251 Consumers Road, Suite 900 Toronto, ON M2J 4R3 Tel: Fax: MISSISSAUGA 110 Matheson Blvd W, Suite 107 Mississauga, ON L5R 4G7 Tel Fax MONTRÉAL 1, Place Ville Marie, Suite 3838 Montréal, QC H3B 4M6 Tel Fax OTTAWA 275 Slater Street, Suite 1004 Ottawa, ON K1P 5H9 Tel Fax EDMONTON Street NW, Suite 502 Edmonton, AB T5J 3G1 Tel Fax CALGARY 301-8th Avenue SW, Suite 500 Calgary, AB T2P 1C5 Tel Fax VANCOUVER 355 Burrard Street, 14 th Floor Vancouver, BC V6C 2G6 Tel Fax For more information, please contact: Thomas Forr Ryan Haney Research Manager Senior Vice President thomas.forr@am.jll.com ryan.haney@am.jll.com Marshall Toner Executive Vice President marshall.toner@am.jll.com Tyler Allen Senior Sales Associate tyler.allen@am.jll.com Ben Wedge Industrial Research Coordinator ben.wedge@am.jll.com Jordan Dunbar Research Associate jordan.dunbar@am.jll.com Carey Koroluk Associate carey.koroluk@am.jll.com Jones Lang LaSalle IP, Inc. All rights reserved. No part of this publication may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of Jones Lang LaSalle. The information contained in this document has been compiled from sources believed to be reliable. Jones Lang LaSalle or any of their affiliates accept no liability or responsibility for the accuracy or completeness of the information contained herein and no reliance should be placed on the information contained in this document.