Unpacking the Calgary Office & Industrial Real Estate Markets with Scout Real Estate

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Joining Cory and Melissa this week we have from Scout Real Estate President and Broker, Lori Suba and Vice President and Associate, Laurae Spindler who are back on the show to revisit the market in Calgary.

Lori and Laurae don’t hold back as we unpack the different sectors of the market as well as discuss the Calgary downtown core and learn what the future could entail for what we agreed was Canada’s top 2023 market.

Take notes and broaden your boundaries as we take a peek over the fence into the Alberta commercial real estate market.

Lori Suba and Laurae Spindler of Scout Real Estate break down everything you need to know about the Calgary office and industrial real estate markets in 2023. Find out: Is Calgary a better commercial real estate investment than Vancouver?

Who are Lori Suba and Laurae Spindler? What is Scout Real Estate?

Lori: I’m the President and a Broker at Scout Real Estate. I have 20 years of leasing expertise in the Calgary market, with a focus on the office sector. I spent the bulk of my career in downtown Calgary but these days I’m all over the city.

We launched Scout in July 2020. We’re a boutique real estate firm specializing in the office and industrial markets.

Laurae: I’m Vice President and Associate here at Scout with a focus on the industrial side. I have about 15 years of experience in the market. I also spent time on the landlord side working with a national REIT and a developer.

We also have our own podcast, Leasing Out Loud. We specialize in market trends in the Calgary, Alberta area.

The Western Investor picked Calgary as one of their top investment markets in 2023. What’s happening in Calgary real estate, specifically in the industrial market?

We’re coming off of a record year for industrial real estate in Calgary in 2022. We’ve had a strong market for about 2.5 years now. The first quarter of 2023 has shown some cooling in absorption but is still strong compared to historical data. We have 5 million square feet of industrial under construction with about 25-35% pre-leased. Our vacancy rate is around 2-2.5% and we expect that to remain stable.
We’ve seen a bit of a slowdown in the big box, large scale industrial projects. So things are a bit different than last year when there was no end in sight to the demand. But overall we still have high demand, low vacancy and rent growth.

What are the top areas for industrial real estate in Calgary?

The Balzac area has seen the largest growth in construction in the last five years. There’s a property tax benefit being in that area, which attracts a lot of development.

Other areas along the Ring Road and to the east of the city are also seeing more growth. We’ll continue to see more parks being built on the east and southeast side of Calgary. Our airport is in northeast Calgary, so these sites would still be in proximity to the airport if they’re in the east.

CN announced a new intermodal transload facility in Calgary which will be delivered in late 2024. That is going to transform the supply chain between Calgary and the ports of Vancouver and Prince Rupert. It’s a great investment and great news for the city.

The CN investment solidifies the confidence in Calgary. We will continue to be a leader in industrial real estate because of our location.

What are lease rates like for industrial properties in an area like Balzac?

Lease rates do depend on your size. If you’re a mid-bay tenant with 25,000 square feet, you’re in the low double digits. To get to the high single digits, you’d have to be 50,000 or 100,000 square feet or more.

In Balzac, we recently had a REIT become a developer. They are undertaking their first new construction development project in industrial. They have been highly successful in Calgary with very low vacancies. They often achieve 3% annual increases across the board.

How is the office market in Calgary?

I wish I could say the office market was as hot as the industrial market in Calgary but it is really a tale of two cities. The office market in Calgary is challenging and it’s been challenging for some time.

I’d say the office market in Calgary is still in recovery mode and will be for a while. It won’t be a quick fix. All office markets are working through trends of remote work and what the implications from that will be.

Downtown we are north of 30% vacant. On the plus side, the last few quarters were positive so we are starting to climb out. The energy sector is returning and they’re cautiously optimistic. But there are ups and downs.

In the suburban office market, we have a record vacancy level at 26%. We’re starting to see migration from the suburban nodes to the downtown core since there are deals to be had downtown.

Within the downtown core, we have two trends happening. We had groups moving out of the lower quality, west end buildings, so have a lot of vacancies there. But we’re also seeing some rent increases in the better quality office buildings. It makes for an interesting office market downtown.

We are still an oil and gas town; we’re commodity based. Those are the tenants in downtown Calgary. We’ve had some bright spots with tech but they’re not really moving the needle. The big swings for Calgary were usually tied to the oil sands.

Can you tell us more about the conversion programs happening in Calgary?

Calgary’s conversion programs were actually featured in the Washington Post! While it was great to see that press for our city, we are a work in progress. The City of Calgary has a goal to convert six million square feet from our commercial inventory downtown, which stands at 43 million square feet total, into residential real estate.

Calgary is very spread out. We don’t have many people living in our downtown core. Most people live in the suburbs and commute into town. But we’re trying to change that with this conversion program and bring new life to the downtown core.

The incentive program is attractive. The city is offering developers $75 per square foot to convert these developments, up to a max of $15 million per project. So far, 1.25 million square feet has been confirmed for conversions and the city has dedicated $450 million in grants. We expect it could be closer to a $1 billion investment.

We are seeing positive momentum! Some buildings that have been challenged for years are going ahead with these conversions. So we’re on the right track and it will be interesting to see how this plays out. It’s not a silver bullet for downtown Calgary’s problems but it’s a move in the right direction.

Is there a demand for people who want to live in downtown Calgary?

That’s the ultimate debate. I appreciate the headline in the Washington Post and many of these conversions are targeting lower cost rentals. But do we have the infrastructure and retail to support the downtown residential market? Have we thought through the traffic implications? What will the mix look like? In my view, it’s still a work in progress.

We need to see what we’re missing and what we can do to attract people to the downtown core. It will be interesting to see if we can get Calgarians out of their cars. Calgarians love their cars and big suburban homes. But parking is very expensive downtown. So it will be interesting to see how that plays out in the next few years.

We’ve heard a lot of talk about a new arena and new entertainment district in downtown Calgary. What’s happening there?

That new arena and entertainment district was recently approved and we’re optimistic about it. There are some really cool plans around that area. The change is needed and overall it will be a good move for Calgary. We’ll finally get the concerts that Edmonton is getting!

There has historically been a mass exodus out of the core of Calgary. We need to change the story in Calgary and that’s what they’re doing. 

Where is the Calgary commercial real estate market 3-5 years from now?

I think overall Calgary is an incredibly entrepreneurial market. We have a very young and highly educated workforce. I’m very optimistic; you have to be as an office broker in Calgary. So I think we will see more conversions; more people living, working and playing in the downtown core. I think we’ll see a recovery from some of the record high vacancy levels and I believe we’ll change the viewpoint away from that mass exodus out of the core.

For industrial, we continue to have high net migration to our city because of our high quality of life and affordable housing. The growth of our city and province add demand to services and goods needed, which means demand for industrial real estate.

I think development has caught up with the significant jump in demand for warehouse space that was created through covid. But the size of our industrial market, our geographic location and the confidence in our market will keep things stable. I don’t think vacancy will increase significantly. I think we’ve set a new benchmark for rental rates.

Calgary is still very affordable when compared to Vancouver or Toronto. So all signs still point to an attractive industrial real estate market. It might not be a record year like 2022, but it will be a stable market that performs well.

The 6 Pack: Getting to Know Scout Real Estate’s Lori Suba and Laurae Spindler

Favourite restaurant or bar?

My favourite restaurant is the River Cafe in Calgary. It was just awarded one of Canada’s 100 Best Restaurants.

What would your last meal be on death row?

I’m going to go with a spicy chicken sandwich from Popeye’s with extra pickles!

There’s a night market bowl from Surfy Surfy that’s a fusion between Polynesian and Thai cuisines. It’s flippin’ delicious!

Favourite band or musician?

I’m listening to the Spotify Calvin Harris mix a lot these days. Maybe it’s the summer weather!

I’m on a T Swift kick right now!

What’s your go-to karaoke song?

Friends in Low Places by Garth Brooks and I Love Rock n Roll by Joan Jett.

What are you currently binge watching?

The Murdaugh Murders docu-series on Netflix.

I’ve been watching Jack Ryan. But right now it’s all NBA Finals for me. I’m rooting for the Denver Nuggets!

What is one book you recommend?

The Key to Rebecca by Ken Follett. I think it’s from the 80’s. It’s a spy novel and one of the best!

My favourite book is Jane Eyre by Charlotte Bronte. I’ve read it many times and would read it all day long!

• Scout Real Estate