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On July 12, Toronto-based Skyline Real Estate Investment Trust (REIT) announced it had paid $67 million for a near-500,0000-square-foot distribution centre in southeast Calgary. It is not alone piling into the city’s industrial sector this year.
“Investment sale transactions picked up dramatically in [second quarter] Q2 2021 with a significant volume of sales across all size ranges on track to close in the Q3 and Q4 2021,” noted Colliers International in its Q2 2021 report on Calgary’s industrial market.
Colliers suggests that investors are turning to Calgary from Vancouver, because of both lower land prices and higher yields in the Alberta city.
Of the three largest industrial sales in Q2, two were to owner-occupiers and the third the $7 million investor acquisition of 95,000 square feet in the Foothills area by VPC Group.
The sales are driven by a building momentum that has seen more than 2.3 million square feet of industrial space absorbed in the first half of this year, 1.45 million square feet of that taken up in the second quarter.
Much of the action is in large-scale distribution centres.
Significant recent transactions include Walmart leasing 157,648 square feet in StoneGate Industrial from ONE Properties and X-Treme Packaging leasing 145,841 square feet in Foothills from Summit Real Estate Investment Trust.
This June, hardware giant Lowes completed a 1.23 million-square-foot distribution centre in Balzac in north Calgary, which opens later this year.
Calgary’s overall industrial vacancy rate continues to drop, falling from 5.35 per cent in Q1 2021 to 5.08 per cent in the second quarter, which has put upward pressure on market rents and decreased tenant inducements. The industrial sector has seen a year-over-year decline of more than 1 per cent in the vacancy rate from Q2 2020, Colliers reported.
The latest Skyline REIT deal is for a single-tenant industrial distribution centre with 498,618 square feet of commercial space on 23.9 acres. This property, at 6600 72nd Avenue SE, was developed and leased through a joint venture between Hopewell Development and Montez Corporation, and it is currently tenanted by Canadian Tire.
“This acquisition is aligned with our fund’s strategy to focus on locations and tenants that operate within the warehousing, distribution, and logistics sector,” said Michael Mackenzie, president, Skyline Commercial REIT. “A new state-of-the-art distribution centre, the property includes a new building with internal clear heights of 36 feet and is equipped with 82 shipping doors.”
The property is Skyline Commercial REIT’s seventh in the city of Calgary. Prior to this purchase, the REIT’s most recent Calgary transaction was the acquisition of a $132 million, four-property industrial portfolio in March 2020.
There is currently 1.86 million square feet of new industrial space under construction across Calgary and1.23 million square feet was completed in the second quarter, according to Colliers, which believes the increased demand could kick off a new cycle of construction.
“Our outlook remains confident moving forward into the rest of the year as Alberta [pandemic] restrictions have eased. We expect vacancy rates to continue to drop and absorption to remain positive in the coming quarters. These trends will allow for another development cycle to commence in Calgary and the surrounding areas,” the commercial agency stated.
