Industrial Insight Report. Calgary & Area Q1 2016

Transcription

1 Industrial Insight Report Calgary & Area Q1 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 Has the Calgary industrial market seen the worst of the downturn? Lease Activity Just over 1.08 million square feet was leased in the first quarter of 2016; a volume that is in line with the first quarter of Of the 122 transactions in the first quarter, only four were larger than 50,000 square feet, which is a notable change from comparable quarters. As there continues to be significant large bay vacancy (both new and old product) we anticipate the increase in vacancy to persist until demand begins to stabilize and development of new product slows. Rental Rates Despite another quarter of steady activity in the industrial market, asking rates dropped by close to 10 cents in the first quarter, due to increased competition of new product and local economic woes. Even if the local economic environment experiences positive improvement towards the latter half of 2016, expect continued downward pressure on rental rates into the early portion of Sales and Construction There was 833,844 square feet of new product delivered in the first quarter of Over 1.8 million square feet remains under construction, the majority of which is big box development catering towards larger format tenants, most of which should be delivered in the second and third quarter of Economic Outlook Oil prices showed signs of positive growth toward the end of the first quarter; and, for the first time in three quarters, the economy is starting to trend slightly upwards. As rig counts continue to fall and OPEC members begin to discuss an output freeze, there is optimism that oil prices will see a recovery toward the end of Given the number of incorrect predictions over the last 18 months we cannot take such an optimistic position as fact, however, if proven accurate by signs of slow recovery, then the industrial market can truly claim to have weathered the storm. Three of the last five quarters registered positive absorption, transaction activity has been consistent and barring a surge in development of new product, vacancy will not have climbed to the highest rates in several years. At the end of the day, the market has continued to be resilient, withstanding low oil prices and the corresponding effect it has on the real estate market. RECENT SALES COMPARABLES (sorted by square feet) Key market indicators 12-month dollar change $0.34 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 $10.20 $10.00 $9.80 $9.60 Total inventory (sf) 143,124,735 Total vacancy (%) 6.9% Total availability (%) 8.7% Q1 net absorption (sf) 457, net absorption (sf) 1,235,630 Average asking rate (nnn) $9.68 Net new supply Total vacancy Net absorption $9.40 2,257 Buyer Seller Location Intersection Size (sf) Date Price / sf Standens Limited SMI Holdings Limited 5775 & th Street SE 57th / 11 th Street SE 99,018 01/19/2016 $ Alberta Ltd Alberta Ltd st Avenue SE 61 st Avenue SE 19,250 01/15/2016 $ Alberta Ltd Simco Management Inc st Avenue SE Quarry Station 11,302 01/04/2016 $334 RECENT LEASE COMPARABLES (sorted by square feet) Tenant Landlord Location Intersection Size (sf) Wallmart Canada Kraft Canada (Sublease) nd Avenue SE 72 nd Avenue SE 252,966 Chep Pallets Hungerford 10 Smed Lane SE Smed Lane 90, % 6.0% 4.0% 2.0% 0.0% JLL Market Update Greater Calgary Area Q Page 1

4 MARKET CHARACTERISTICS Opportunistic market for tenants and investors who posses the ability to capitalize 1 Increase in property taxes driving up operating costs. 2 Large amount of big box distribution space continues to impact vacancy and availability 3 Economy continues to grapple with low oil prices 4 MARKET STATISTICS Property type Total inventory (sf) Total vacancy (%) Total availability (%) Q1 total net absorption (sf) 2015 total net absorption (sf) Average direct asking rent ($ psf) Under construction (sf) YTD completions Warehouse / Distribution 103,998, % 9.4% 413, ,620 $9.31 1,687, ,860 Manufacturing 19,521, % 5.7% 25,117 57,550 $ ,000 0 Total Industrial 123,520, % 7.% 438, ,170 $9.91 1,743, ,860 Flex / R&D 1,973, % 9.7% (11,630) (28,420) $ ,500 0 JLL Market Update Greater Calgary Area Q Page 2

5 Pricing Demand Supply Northeast / Balzac Lease Activity Of all transactions in the Northeast and Balzac region in the first quarter, 80.0 percent were under 10,000 square feet. This is hardly surprising considering the activity, or lack thereof, on big bay product in the region. The 20,000 to 60,000 square feet product seems to be generating the least activity. Alternatively, small bay product in the area remains in high demand and options are far more limited than mid to large bay spaces. There are a few large tenants in the market right now, and it will be a clear indication of the pace of the market if those deals complete in the second quarter. Rent Rates Lack of demand and activity as previously mentioned, will continue to hurt rental rates for most, if not all of Currently if a tenant is in the market for 30,000 square feet and up, there are 38 properties almost 90 spaces in the region. Sales and Construction There was 1.33 million square feet of industrial product is still under construction in the Northeast. A number that will likely be cut in half in the second quarter with Bentall and Oxford putting the finishing touches on both Nose Hill Creek and the Airport Business Park, respectively. Both projects are expected to be delivered by May. Sales in the area were very low in the first quarter; the problem is not a lack of investors and tenants looking to purchase, but more over the lack of available product for sale in the area. The small bay condo market specifically remains difficult to find in the submarkets. That will change in the second quarter as some new developments in the Balzac will finish completion. Economic outlook The Northeast continues to be a hotbed for new development in the industrial world. Its close proximity to the Calgary International Airport and easy access to major transportation routes will continue to attract new and existing users who have a heavy reliance on logistics, as a core value in their business model. Balzac specifically has undergone tremendous growth in the last three years and there is still plenty of room for more development in the area. Being just outside the city limits gives Balzac the unique selling feature of low property taxes and zero business tax - these attributes will continue to draw tenants. RECENT SALES COMPARABLES (sorted by square feet) Key market indicators 12-month dollar change $0.11 Arrows represent change from prior quarter Net new supply, Net absorption, vacancy 1,500,000 Net new supply Net absorption 1,000,000 Total vacancy 500,000 sf 0-500,000-1,000,000-1,500,000 Average net asking rate $9.50 $9.40 $9.30 $9.20 Total inventory (sf) 42,122,736 Total vacancy (%) 10.3% Total availability (%) 11.9% Total net absorption (sf) 88, net absorption (sf) (798,310) Average asking rate $9.40 $9.10 2,257 Buyer Seller Location Intersection Size (sf) Date Price / sf Alberta Ltd. Rajesh Goyal 28 Gateway Drive NE (Airdrie) Gateway 18,045 01/20/2016 $83 Xtreme Auto and Truck Sales Ltd Alberta Ltd 530 Meridian Road NE Meridian 12,913 01/26/2016 $302 PS Jacksonport, Inc.. Shepard Jacksonport Ltd th Street NE 36 th Street NE Land (3 acres) 03/01/2016 $1.1M /acre RECENT LEASE COMPARABLES (sorted by square feet) Type Landlord Location Intersection Size (sf) New GWL 47 Aero Drive NE Aero Drive 65,542 New Donel Holdings 5050 Skyline Way NE Skyline Way 37,655 New GWL 49 Aero Drive NE Aero Drive 19, % 10.0% 5.0% 0.0% JLL Market Update Greater Calgary Area Q Page 3

6 Pricing Demand Supply Southeast Lease Activity Calgary's largest industrial submarket was busy in the first quarter with 645,237 square feet of lease transactions occurring; at this pace, the market is only slightly behind the first quarter of However, it should be noted that over a third of that absorption was due to one transaction with Walmart occupying 252,966 square feet of the Kraft sublease in Foothills on a short term option. Rental Rates For the fifth consecutive quarter rents in the Southeast dropped; tenants are taking advantage of over supply and are squeezing landlords on rates. Like the rest of the market, we expect this to remain a consistent them for the remainder of Sales and Construction There is 337,840 square feet of new development under construction in the Southeast. The projects to note are York s design builds on 68 th Street Southeast and phase 2 of Beedies Glenmore Trail Corporate Centre, a 87,000 square foot building expected to be finished by September of this year. With that in mind, almost 900,000 square feet was delivered to the market in the first quarter, the extent of which was building 2 of the Home Depot s Rapid Deployment Centre and building B of Hopewell's Great Plains business park. Sales were relatively slow in the first quarter, but there could be a massive increase in the remainder of 2016 as some big ticket options are hitting the market; players with big pockets looking to capitalize in a down market will certainly have the opportunity to do so down the stretch. Economic Outlook The Southeast will continue to be the most sought after submarket for pure industrial users. It boasts the largest inventory, a diverse tenant mix and immediate access to essential road networks required for most tenants. The challenge in the Southeast as it continues to grow will be finding tenants for the some of the older inventory. Landlords with aged buildings brandishing higher operational costs are going to have increased difficulty when it comes to leasing; they are going to be forced to get uncomfortably creative when it comes to deals. Key market indicators 12-month dollar change $0.93 Arrows represent change from prior quarter Net new supply, Net absorption, vacancy 2,000,000 1,500,000 1,000, ,000 sf 0 Average net asking rate $10.50 $10.00 $9.50 $9.00 Total inventory (sf) 64,442,814 Total vacancy (%) 5.5% Total availability (%) 8.6% Total net absorption (sf) 571, net absorption (sf) 2,049,990 Average asking rate $9.35 Net new supply Total vacancy Net absorption $8.50 2, % 4.0% 2.0% 0.0% RECENT SALES COMPARABLES (sorted by square feet) Buyer Seller Location Intersection Size (sf) Date Price / sf Superior Truck Equipment Inc. Drilling Fluids Systems Inc th Avenue SE 114 th Avenue 21,086 01/20/2016 $ Alberta Ltd Alberta Ltd st Avenue SE 61 st Avenue 19,250 01/18/2016 $169 RECENT LEASE COMPARABLES (sorted by square feet) Type Landlord Location Intersection Size (sf) Renewal (Sublease) Iron Mountain Avenue SE 106 th 59,291 New Trillium th Avenue SE 77 th 19,200 Expansion CREIT th Avenue SE 45 th 39,632 JLL Market Update Greater Calgary Area Q Page 4

7 Pricing Demand Supply South Central Lease Activity Although the South Central completed just over 90,000 square feet of lease deals in the first quarter, it still registered negative absorption of 46,950 square feet. Less than 20 deals were transacted and only two were larger than 15,000 square feet. Rental Rates Asking rates believe it or not increased by 1.09 percent in the quarter. This is not likely a factor of demand and is likely skewed by quality of product that became available in the first quarter. The South Central is home to an abundance of flex and quasi-retail developments that when on the market tend to drive up rates. Sales and Construction In a market limited by space to begin with, no new supply touched down in the first quarter. Hungerford s Fairmore Business Park remains the only current development under construction. The 58,500 square foot project is set to deliver in the second quarter. There was some sale activity in the first quarter, most notably Enrights purchase of the Standens facility on 11 th Street Southeast. The 99,018 square foot transaction closed in January of Economic Outlook The South Central has a much higher ratio of dated infrastructure and buildings than any of the other industrial submarket in Calgary. Even though vacancy rose to 3.1 percent this quarter, it was still well below the entire market by almost 4.0 percent. Location to the core and several amenities will always stimulate demand for this submarket that is dominated by small bay product. Numbers don t always tell all the details, but the first quarter s negative absorption could insinuate that some tenants are no longer feeling the pressure to pay the rate required to stay in the South Central. Rates aside, it s interesting to note that operational costs have dramatically increased from over a year ago as some of the older buildings in the area are getting hammered on property tax. On average, from the first quarter of 2015 to first quarter of 2016 they have moved $2.36 cents higher. In the long run, the South Central will always be a desirable location for tenants, but in a down market it may not always be worth it. Key market indicators 12-month dollar change $0.60 Arrows represent change from prior quarter Net new supply, Net absorption, vacancy 60,000 Net new supply Net absorption 40,000 Total vacancy 20,000 sf 0-20,000-40,000-60,000 Average net asking rate $12.00 $11.50 $11.00 Total inventory (sf) 22,536,055 Total vacancy (%) 3.1% Total availability (%) 5.2% Total net absorption (sf) (48,950) 2015 net absorption (sf) 40,900 Average asking rate $11.10 $ , % 3.0% 2.8% 2.6% 2.4% RECENT SALES COMPARABLES (sorted by square feet) Buyer Seller Location Intersection Size (sf) Date Price / sf Enright Standend G.P. Ltd. SMI Holdings Limited 5775 & th Street SE 11 th Street SE 99,018 01/19/2016 $82 Louson Investments Ltd. Stella Developments Ltd A Street SE 36 th & 15 th 11,302 01/16/2016 $178 RECENT LEASE COMPARABLES (sorted by square feet) Type Landlord Location Intersection Size (sf) New York Realty Inc th Avenue SE 58 th 16,090 New DREAM th Street SE 70 th and 5 th 15,443 New Ronmor th Street SE 11 th Street 6,700 JLL Market Update Greater Calgary Area Q Page 5

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