Tags: boom, bust, Calgary real estate, commercial real estate, construction
The amount of commercial real estate being developed in Calgary has not been witnessed since the 70’s and early 80’s. There are currently several mega-projects being built including the Bow (236.0 m), Eighth Avenue Place I (213.2 m), Centennial Place I (176.0 m), Jamieson Place (170.0 m), and Centennial Place II (110.0 m). These commercial buildings will greatly increase the amount of square footage of commercial real estate available downtown.
The Bow, at a staggering 1.7 million square feet, will consolidate EnCana’s staff from three buildings into one. Eighth Avenue Place (Penny Lane) currently has no anchor tenant and is being built on speculation. Commercial real estate lease agents are currently having a hard time getting anyone to sign a 1+ year contract due to the volumes of commercial real estate being developed.
It is possible that there is going to be an oversupply of commercial real estate in Calgary, and after this wave of commercial real estate is finished, there will likely be an extended lull in construction.
The following graph compares aggregate height of commercial buildings constructed over 100 metres by completion year against residential real estate prices:
A timeline of images of Calgary skylines shows that there is little change in commercial development from 1985 to 2004.
Some of the conclusions I came up with after doing this analysis are fairly intuitive, but help to provide insight into timing. These are:
- Residential prices boom during periods of commercial construction booms.
- Current commercial construction levels have not been this high since the 70’s and early 80’s.
- The residential real estate bust in Calgary occurred during a time when there was record levels of large scale commercial real estate construction being completed.
- When the 1980’s commercial construction boom ended, house values fell dramatically.
- Overdevelopment of commercial real estate in the 80’s left little constructed for the following 20 years.
- Commercial real estate construction is incredibly cyclical.
- For this construction boom, there is a much greater share of construction projects over 100 metres that are residential vs. commercial.
As an aside, I encourage anyone who is looking at the Canadian real estate market to look past the sound bites. Due to their vested interest, it is difficult to find a banker, real estate agent, CMHC analyst, developer, newspaper, or radio program which has the chance to be frank and analytical.