Conditions remain challenging in the city’s real estate market, a new report has found. While hardly surprising given the Calgary’s ongoing economic challenges, the study also revealed increased activity in some areas of the market, indicating brighter days may be ahead.
“Overall, the Calgary real estate market has been a slower market in 2019, but it’s in relation to what was a really strong market 2018,” says Matthew Boukall, vice-president of product management, data solutions at Altus Group.
The Canadian commercial real estate firm released its Calgary Flash Report late last month showing residential land investments dropped in 2019 by 57 per cent (ending in June) from the same span in 2018.
In contrast, 2018 saw land deals rise by 17 per cent, year over year.
“We also saw a huge number of new multi-family projects launch in 2018.”
He notes 26 projects launched in just one quarter last year.
“That brought a lot of supply to the market, which means developers weren’t looking to buy more land this year because they already have active positions in the market today.”
Among those bright spots, however, included an increase in multi-family rental apartment deals.
“We have seen purpose-built multi-family apartment (rentals) continue to be a very attractive investment, and the (sales) volumes are up across every market in Canada, including Calgary,” he says.
Transactions more than doubled in the city for the first half of the year compared with 2018. All told the deals were worth roughly $200 million.
“One driver is there has been more purpose-built rental construction and, in turn, there are now more investment opportunities that weren’t there the year before,” Boukall says.
Real estate investment trusts (REITs) drove sales.
Minto Apartment GP Inc.’s acquisition of the Quarters in the southeast was the largest. The $68 million deal accounted for almost one-third of activity in the multi-family rental segment.
Another green shoot in the market was the industrial property with deals this year worth almost $400 million. That’s a jump of 25 per cent over last year. While the transactions do not directly affect the city’s residential market, the deal flow does point to confidence in Calgary’s economy.
Boukall further notes the economy is showing other signs of improvement, including net migration growth. Over the last year, close to 10,000 people came to the city, which helps drive demand for rental units, he adds.
“Consequently, apartments are seen as an attractive investment, and there is still opportunity for rent growth, which tends to rise with inflation and wages.”
Conversely, new multi-family condominium sales were down. Boukall explains fewer new launches of product this year led to lower activity.
“If there is nothing new to buy, sales will usually be down.”
The apartment condominium dragged down multi-family sales overall. Sales fell about 50 per cent from the previous year. But new townhome sales were up modestly. Boukall adds townhomes remain strong because of what they offer young families.
“If you have a need for a garage and more than two bedrooms, the townhouse is the most affordable option.”
Moreover affordability is driving the residential market, he says. While overall residential market has been slow, Altus’s study points to growing confidence among would-be first-time buyers. Additionally, it notes those who did purchase a home bought 15 per cent below the average price.
Boukall says the data point to increased homeownership interest among millennials.
“This is a weird term, but ‘aging’ millennials are moving into household formation.”