CALGARY - TCN Worldwide · CALGARY YEAR END 2015 AS ... absorption are separate phenomena. With...

Prepared by Barclay Street Real Estate

CAPITAL MARKETS ANALYSIS

PREPARED BY BARCLAY STREET REAL ESTATE

w w w . b a r c l a y s t r e e t . c o m

Director of Research – Anthony B. Scott403-290-0178 • [email protected]

CALGARY YEAR END 2015

AS WAS LARGELY EXPECTED, THE EFFECTS OF LOW PRICED OIL, COMBINED WITH A DRAMATICALLY CHANGED POLITICAL LANDSCAPE IN ALBERTA, affected investor sentiment and caused the investment market in Calgary to quiet significantly in 2015. In comparison to 2014 when $2.66 billion transacted across the Office, Retail, Industrial, Multi-Residential and ICI/Residential Land asset classes, approximately $1.5 billion was invested during 2015. While one may expect a particular asset class to emerge as a defensive play during difficult times, a look at sales activity and dollar volume in each asset class in comparison to 12 months prior shows no such asset class standing out; activity was down in all asset classes, although the Multi-Residential properties and Residential Land asset classes each transacted at 89% of 2014 dollar volume. One metric used by Barclay Street is activity level (the number of transactions) by property price range, which yields data showing an across-the-board shift in investor focus toward properties priced less than $5 million; specifically, between $1 million and $3 million.

Long-term confidence in Calgary’s investment market remains, as evidenced by the prices paid per square foot, per unit (Multi-Residential) and per acre across all asset classes. In light of the overall decreases in dollar volume and activity, it is noteworthy that using these metrics, we see that 2015 prices remained above those of 2009 which is arguably the most comparable year for economic performance.

Significant attention has been given to the state of Calgary’s office market, which saw year-over-year vacancy increase across all submarkets. The impact of the ongoing downward trend in


Overview

1-2Office Investment

3Retail Investment

4Industrial Investment

5Multi-Residential Investment

6ICI and Residential Land Investment

7

TABLE OF CONTENTS

2014 2015 Year-Over-Year Change

Total Dollar Volume $2,664,284,873 $1,504,463,602 ($1,159,821,271)

Volume Excluding Residential Land $2,250,920,722 $1,135,491,736 ($1,115,428,986)

Residential Land Only $413,364,151 $368,971,866 ($44,392,285)

oil prices during 2015 was particularly dramatic in the Downtown Market, as it continues to represent the epicentre of energy industry headquarters. The absence of a ‘pricing floor’ led several producers to implement cost reduction strategies such as layoffs, scaling back wages, canceling bonuses and overtime hours, as well as making attempts to sublease their excess space.

In the Suburban Markets, the timing of new office project deliveries has been a key element of the vacancy increase. More than 800,000 sf of new product was introduced over the course of 2015, a significant amount of which was unleased at the time of delivery. This new space served to magnify the effects of tenant contractions.

In this light, it should be noted that the introduction of new product and absorption are separate phenomena. With approximately 4.5 million square feet (msf) of office space slated for delivery in the Downtown, Beltline and Suburban submarkets through 2018, Calgary`s overall vacancy rate can, therefore, be reasonably expected to increase as these new, often LEED certified options become available for tenancy and the overall inventory increases.

On the other end of the spectrum, the retail sector maintained a very low vacancy rate. Early in 2015,

Year End 2015 • Calgary


2

a significant amount of Big Box retail space was vacated following

Target’s departure from Canada and Best Buy’s rebranding, which involved shutting down the Future Shop brand. The silver lining to this situation is that vacant space stemming from closures is highly sought-after and quickly back-filled in response to Calgary’s high retail spending per capita and the city’s land use regulations, which are generally limiting new retail development. As such, investor interest in reliable streams of cash flow has helped maintain activity within this sector, though the lack of available good quality retail product kept a damper on sales volume.

27%

14%

24%

6%

13%

16%

OfficeRetailIndustrialMulti-ResidentialICI LandResidential Land

2014 Commercial Real Estate Investment

Total Dollar Volume: $2.66 Billion

Sales > $1 Million

15%

15%

22%10%

14%

25%

OfficeRetailIndustrialMulti-ResidentialICI LandResidential Land

2015 Commercial Real Estate Investment

Total Dollar Volume: $1.5 Billion

Sales > $1 Million

Office

Office

Retail

Retail

IndustrialIndustrial

Multi-Residential

Multi-Residential

ICI Land

ICI Land

Residential Land

Residential Land

TOTAL DOLLAR VOLUME TOTAL SALES ACTIVITY

$2.66 BILLION 382 SALES

$1.5 BILLION 256 SALES

2014

2014

2014

2014

2014

2014

2015

2015

2015

2015

2015

2015

DOLLAR VOLUME

DOLLAR VOLUME

DOLLAR VOLUME

DOLLAR VOLUME

DOLLAR VOLUME

DOLLAR VOLUME

SALESACTIVITY

SALESACTIVITY

SALESACTIVITY

SALESACTIVITY

SALESACTIVITY

SALESACTIVITY

$720M

$630M

$347M

$385M

$170M

$413M

25 Sales

93 Sales

78 Sales

53 Sales

56 Sales

77 Sales

$224M

$323M

$216M

$222M

$151M

$367M

19 Sales

80 Sales

38 Sales

43 Sales

30 Sales

46 Sales

2014

2014

2014

2014

2014

2014

2014

2014

2014

2014

2014

2014

2015

2015

2015

2015

2015

2015

2015

2015

2015

2015

2015

2015

TRANSACTION ACTIVITY DISTRIBUTION,PERCENTAGE OF TOTAL SALES

2014 COMMERCIAL REAL ESTATE INVESTMENT SALES OVER $1 MILLION

2015 COMMERCIAL REAL ESTATE INVESTMENT SALES OVER $1 MILLION

2014 2014

2015 2015

Multi-Residential

RetailOffice

Residential LandICI Land

Industrial

0%

50%

100%

$1 million - $3million




$25 million plus

Office Transaction Activity Distribution Percentage of Total Sales

2014 2015

0%

50%

100%





$25 million plus

Retail Transaction Activity Distribution Percentage of Total Sales

2014 2015

0%

50%

100%





$25 million plus

Multi-Residential Transaction Activity Distribution Percentage of Total Sales

2014 2015

0%

50%

100%





$25 million plus

Industrial Transaction Activity Distribution Percentage of Total Sales

2014 2015

0%

50%

100%





$25 million plus

ICI Land Transaction Activity Distribution Percentage of Total Sales

2014 2015

0%

50%

100%





$25 million plus

Residential Land Transaction Activity Distribution Percentage of Total Sales

2014 2015



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Office Investment

IN 2015 THE OFFICE INVESTMENT MARKET IN CALGARY SAW 19 OFFICE TRANSACTIONS GREATER THAN $1 MILLION, totalling $224 million and represented 15% of investment across all asset classes, down from 27% in 2014. Given Calgary’s construction pipeline and the current economic down cycle anticipated to linger through 2016, a prolonged period of high vacancy could drive landlords to release underperforming assets. With average price per square foot for office sales on the decline, however, these assets will not fetch what they would have a year ago.

The flight to quality continues to be the trend for prospective tenants and with vacancy rates having risen across all submarkets, the downward pressure on rates is making Class AA and A space very appealing. As a result,

12 Sales, 63.2% 1 Sale, 5.3%

1 Sale, 5.3%

3 Sales, 15.8%

2 Sales, 10.5%

$1 million - $3 million $3 million - $5 million

$5 million - $10 million


$25 million plus

2015 Commercial Office Investment Activity Distribution

2012 2013 2014 2015Total $ Volume $1,454,441,564 $1,067,696,088 $712,276,508 $223,984,241# of Transactions 44 34 24 19Avg. Bldg. Price per Square Foot $377 $392 $426 $340Average Price Per Transaction $33,055,490 $34,178,465 $29,678,188 $11,788,644Average Building Size (sf) 87,603 82,556 69,722 44,035

OFFICE TRANSACTIONS OVER $1 MILLION (TOTAL ANNUAL)OFFICE TRANSACTIONS OVER $1 MILLION (TOTAL ANNUAL)

the already challenged leasing market has seen increased vacancy pressure on Class B and C space. Some building owners are using the down cycle as an opportunity to renovate and reposition their properties in order to re-enter the Class A market. For example, work in the former SNC Lavalin building began in mid-2015 and substantial renovations are planned for the former Encana building, purchased by Aspen Properties in early 2015. This particular transaction represents the largest sale of the year by a wide margin at $116 million.

Performing a dollar volume comparison of 2015 versus 2014, investment decreased substantially, which was not unexpected given the uncertain macroeconomic environment. In a year-over-year activity comparison, however, we see a drop of approximately one-quarter. This clearly demonstrates continued investor interest but begs the question as to where that interest lay. Referring to the distribution pie chart below, Barclay Streets’ analysis shows investor activity concentrated on office properties priced in the $1 million to $3 million dollar range.

2015 OFFICE INVESTMENT ACTIVITY DISTRIBUTION

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Average Price per Square FootAVERAGE PRICE PER SQUARE FOOT

0

10

20

30

40

50

60

70

80

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

# of TransactionsNUMBER OF TRANSACTIONS

$0$200,000,000$400,000,000$600,000,000$800,000,000

$1,000,000,000$1,200,000,000$1,400,000,000$1,600,000,000$1,800,000,000$2,000,000,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Total $ VolumeTOTAL $ VOLUME

For detailed Office Leasing Analysis of the Calgary market go to barclaystreet.com/research

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http://barclaystreet.com/research



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Retail Investment

AS NOTED IN BARCLAY STREET’S 2015 YEAR END RETAIL ANALYSIS, Calgary’s retail market experienced a small year-over-year vacancy increase to 2.7% from 2.3% at the end of 2014, largely as a result of Big Box format space suddenly coming to market. This format, which had been at essentially zero vacancy for years, spiked as several hundred thousand square feet were vacated by Target Canada and Best Buy closed down its sister brand Future Shop in a rebranding campaign. The former Target stores proved to be heavily sought-after by landlords such as Cadillac Fairview and competitors such as Canadian Tire and Lowes, while the former Future Shop stores await new tenancy. This may come

2012 2013 2014 2015Total $ Volume $485,217,641 $249,741,704 $392,663,729 $222,026,567# of Transactions 41 40 58 43Avg. Bldg. Price per Square Foot $278 $343 $371 $384Average Price Per Transaction $11,834,577 $6,243,543 $6,770,064 $5,163,409Average Building Size (sf) 42,512 18,192 18,557 13,442

RETAIL TRANSACTIONS OVER $1 MILLION (TOTAL ANNUAL)RETAIL TRANSACTIONS OVER $1 MILLION (TOTAL ANNUAL)

in the form of new Big Box retailers or several small tenants, which will require substantial renovation work.

The retail sector demonstrated surprising staying-power as an investment asset class, maintaining 81% of 2014 investment activity with 43 transactions completed. Referring to the distribution pie chart below, Barclay Street’s analysis shows the majority of activity occurring with retail properties priced at less than $5 million dollars; specifically, with properties in the $1 million to $3 million dollar range. Performing a dollar volume comparison of 2015 versus 2014, the investment decrease was not unexpected given the lack of big-ticket properties on the market and the diminished appetite for such on the part of investors.

2015 RETAIL INVESTMENT ACTIVITY DISTRIBUTION

$0

$50

$100

$150

$200

$250

$300

$350

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$450

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


0

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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


17 Sales, 39.5% 14 Sales, 32.6%

8 Sales, 18.6%

4 Sales, 9.3%




$25 million plus

2015 Commercial Retail Investment Activity Distribution

For detailed Retail Leasing Analysis of the Calgary market go to barclaystreet.com/research

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Industrial Investment

THE GREATER CALGARY INDUSTRIAL MARKET SAW DRAMATIC CHANGES IN 2015, with industrial inventory increasing by 5.5 million square feet (sf) during the year, which represents total inventory growth of approximately 1.6%. The Greater Calgary Area (GCA) saw positive absorption of 2.15 million square feet (msf), which falls below both the 5.2 msf of positive absorption seen in 2014, as well as the 10-year average absorption rate of 3.4 msf. On that point, it should be noted that the past year was significantly healthier than the 300,000 square feet of positive absorption witnessed in 2009; the most comparable year for economic performance.

46 Sales, 57.5% 17 Sales, 21.3%

9 Sales, 11.3%

7 Sales, 8.8%

1 Sale, 1.3%




$25 million plus

2015 Commercial Industrial Investment Activity Distribution

2012 2013 2014 2015Total $ Volume $380,328,379 $641,773,697 $614,294,285 $322,786,141# of Transactions 82 85 94 80Average Price per Square Foot $156 $121 $142 $192Average Price $4,638,151 $7,550,279 $6,535,046 $4,034,827Average Building Size (sf) 30,408 62,530 47,389 26,580

INDUSTRIAL TRANSACTIONS OVER $1 MILLION (TOTAL ANNUAL)INDUSTRIAL TRANSACTIONS OVER $1 MILLION (TOTAL ANNUAL)

Total dollar volume transacted was $323 million with an average sale price of $192 per square foot (psf). Excluded from our numbers but worthy of noting, is the 1.3 million square foot Balzac facility sale from Target to Sobeys for $50 million or $38 per square foot. This represents a major outlier, as the sale transacted at a below-market price due to non-real estate factors.

In terms investment activity, the industrial sector demonstrated the greatest consistency of the six asset classes Barclay Street tracks, maintaining 86% of 2014 investment activity with 80 transactions completed. Referring to the distribution pie chart below, Barclay Street’s analysis shows the majority of activity occurring with industrial properties priced at less than $5 million dollars; specifically, properties in the $1 million to $3 million dollar range in which 46 transactions took place.

2015 INDUSTRIAL INVESTMENT ACTIVITY DISTRIBUTION

$-

$50

$100

$150

$200

$250

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


0

20

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120

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

$700,000,000

$800,000,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


For detailed Industrial Leasing Analysis of the Calgary market go to barclaystreet.com/research

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Multi-Residential Investment

THE MULTI-RESIDENTIAL MARKET ENDED 2015 WITH DOLLAR VOLUME AT 89% OF 2014 LEVELS but with a substantial decrease in the number of transactions. This statistic is misleading, however, as it has been skewed by two extraordinarily large Multi-Residential transactions – Revera Retirement Living, which contains 154 units was purchased by a foreign investor for $53 million and The Laurier, which contains 144 units and was sold to Minto for $50 million. These transactions represent more than two-thirds of 2015 total dollar volume. Adjusting for these, the average price per unit is $194,000.

2012 2013 2014 2015Total $ Volume $406,429,820 $184,119,075 $195,877,359 $150,944,958# of Transactions 38 43 59 30Average Price per Unit $172,655 $170,323 $183,922 $264,816Average Price $10,695,522 $4,281,839 $3,319,955 $5,031,499Average Building Size (Units) 65 25 18 19

MULTI-RESIDENTIAL TRANSACTIONS OVER $1 MILLION (TOTAL ANNUAL)MULTI-RESIDENTIAL TRANSACTIONS OVER $1 MILLION (TOTAL ANNUAL)

In terms investment activity, the Multi-Residential sector witnessed a substantial decrease versus that seen in 2014, with 30 transactions completed versus 56 one year prior. Referring to the distribution pie chart below, Barclay Street’s analysis shows 87% of activity in this asset class occurring with properties in the $1 million to $3 million dollar range.

2015 MULTI-RESIDENTIAL INVESTMENT ACTIVITY DISTRIBUTION

$-

$50,000

$100,000

$150,000

$200,000

$250,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Average Price per UnitAVERAGE PRICE PER UNIT

0

20

40

60

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100

120

140

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

$700,000,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


26 Sales, 86.7%

1 Sale, 3.3%

1 Sale, 3.3%

2 Sales, 6.7%




$25 million plus

2015 Multi-Residential Investment Activity Distribution

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ICI & Residential Land Investment

THE ICI LAND (INDUSTRIAL, COMMERCIAL AND INVESTMENT LAND) SECTOR HAS CONTRIBUTED $216 MILLION OF THE $585 MILLION IN TOTAL LAND SALES GENERATED DURING 2015. The average ICI transaction sits at $5.7 million with five transactions greater than $10 million; one of which was a $29.3 million purchase of industrial land north of Country Hills Boulevard by a private investor from AIMCo.

At $369 million, Residential Land sales represent the lion’s share of land investment sales in 2015. The value of the average Residential

2012 2013 2014 2015Total $ Volume $412,082,148 $480,240,938 $816,045,293 $584,721,695# of Transactions 60 42 149 84Average Price per Acre $589,902 $352,378 $443,601 $306,527Average Price $6,868,036 $5,520,011 $5,479,154 $6,849,377Total Land Area (Acres) 699 1363 1840 1908Average Land Area (Acres) 12 16 12 19

ICI & RESIDENTIAL LAND TRANSACTIONS OVER $1 MILLION (TOTAL ANNUAL)ICI & RESIDENTIAL LAND TRANSACTIONS OVER $1 MILLION (TOTAL ANNUAL)

transaction sat at $8 million and there were only two transactions greater than $25 million. In the Downtown Commercial Core, Great Gulf purchased the YWCA facility on 2.8 acres of land in November for $48.9 million. The largest land purchase was South of Calgary where 349.3 acres were purchased by Genesis Building Corp for $52.5 million.

In terms investment activity, the ICI Land asset class saw 38 transactions completed in 2015, versus 78 in 2014. Dollar volume was 62% of investment witnessed during 2014. Referring to the distribution pie chart on the left, Barclay Street’s analysis shows the majority of purchases occurring in the $1 million to $3 million dollar range, where 22 of the 38 transactions were completed.

Residential Land, similar to ICI, saw a notable decrease in investor activity, from 77 in 2014 to 46 in 2015. Tracking year-over-year dollar volume, however, this asset class retained 89% of year-over-year investment due in large part to the significant transactions noted above.

$-

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Average Price per AcreAVERAGE PRICE PER ACRE

0

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140

160

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


$0

$200,000,000

$400,000,000

$600,000,000

$800,000,000

$1,000,000,000

$1,200,000,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


22 Sales, 57.9% 5 Sales, 13.2%

6 Sales, 15.8%

4 Sales, 10.5%

1 Sale, 2.6%




$25 million plus

2015 ICI Land Investment Activity Distribution

18 Sales, 39% 6 Sales, 13%

14 Sales, 31%

6 Sales, 13%2 Sales, 4%



$10 million - $25 million$25 million plus

2015 Residential Land Investment Activity Distribution

2015 ICI LAND

INVESTMENT ACTIVITY

DISTRIBUTION

2015 RESIDENTIAL

LAND INVESTMENT

ACTIVITY DISTRIBUTION

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RealNet.ca

Barclay Street Real Estate Year End 2015 Analyses: Downtown, Beltline and Suburban Office Market, Retail Market and Industrial Market

w w w . b a r c l a y s t r e e t . c o m

L O C A L E X P E R T I S E M A T T E R S

References

INVESTMENT TEAM 403-290-0178BARCLAY STREET REAL ESTATE

KELLY CARVERVICE PRESIDENT, ASSOCIATE [email protected]

GEORGE LARSONVICE [email protected]

NICHOLAS [email protected]

DAN HARMSENVICE PRESIDENT, ASSOCIATE [email protected]

JON MOOKEXECUTIVE VICE [email protected]

CASEY STUARTVICE [email protected]

DOUG GRINDEVICE [email protected]

DAVID WALLACHPRESIDENT, [email protected]

JEREMY [email protected]

CALGARY - TCN Worldwide · CALGARY YEAR END 2015 AS ... absorption are separate phenomena. With...

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