What to expect from the Calgary real estate market in 2019

As western Canada’s oil and gas hub, it’s hard to discuss Calgary’s real estate market without talking about oil and gas.

There’s no sugar coating that 2018 was a tough year for Alberta’s oil and gas industry, as it faltered under the pressure from low commodity prices, lack of export pipelines and an increased regulatory burden.

Calgary’s real estate market also faltered. Overall property sales - including detached homes, apartments and attached homes - totalled 16,144 units in 2018, almost 20% below long-term averages, according to the Calgary Real Estate Board.

Calgary’s December sales totalled 794 units, which was down 21% from a year earlier. The sales-to-active listings ratio for December was 23.3%, while the composite benchmark price was down 3.42% from $433,300 to $418,500 in December from the year prior.

A broadly oversupplied market in 2018 and a year-end slide in WTI oil prices with deeply discounted Western Canadian Select (heavy oil) prices set the stage for some gloomy real estate forecasts for Calgary in 2019.

Not great expectations

The latest market outlook from Moody's Analytics expects more price declines for detached houses—traditionally considered the strongest segment of Calgary's market. It forecasts a 2.9-per-cent decline in median prices over the next year.

Royal LePage predicts that by the end of 2019, the median home price in Calgary will fall another 2.3% while RE/MAX’s report is more optimistic, expecting Calgary’s average residential sale prices will remain flat in 2019. Both real estate brokerage reports blame low consumer confidence due to persistently weak oil prices and new mortgage regulations for weaker prices and lower sales volumes.

Our Emerging Trends in Real Estate 2019 report ranks Calgary last in its top 10 Canadian municipalities to watch this year. Toronto and Vancouver take the top two spots, respectively, while Alberta’s capital comes in at number nine.

Solid fundamentals but little consumer confidence

Interestingly, Calgary’s weak real estate performance in 2018 ran counter to the stream of solid GDP growth in the city of 2.9% for the year.

Moreover, in 2019, the Conference Board of Canada expects Calgary’s economy to grow at a respectable 2.3%, on par with Toronto and Vancouver.

Despite respectable economic fundamentals underlying all three municipal markets, the decisive difference seems to be consumer confidence.

There’s palpable frustration in Alberta that oil and gas interests are being ignored by Canada’s policy makers. Pro-oil and gas gatherings in Fort McMurray, Grande Prairie, Calgary and Nisku, and truck convoys in Southern Alberta in late-2018 reflected this discontent.

Add to that, new U.S. tariffs on Canadian exports, a potential meltdown in Canada-China relations with damaging economic implications, and a provincial election in May—is it any wonder that demand for Calgary’s real estate market is flagging?

But, a lot can change for consumer confidence after the election as Alberta decides, among other things, its oil and gas prospects for the future.

Positives

As in any market, challenges also bring opportunities. Those who understand the trends will find bright spots.

Although Calgary’s housing market remains broadly oversupplied, rental vacancy rates peaked at 7% in 2016 and have gradually improved since then to the 6% range, according to the Canada Mortgage and Housing Corporation.

Alberta's unemployment rate fell by a full percentage point in November to 6.3%, according to Statistics Canada. In Calgary, unemployment improved slightly to 7.9% in November from 8.2% in October.

According to our research at PwC, first-time and move-up home buyers are the most active segment in multi-family residences and luxury homes sales, despite higher interest rates and new mortgage rules. Millennials and younger couples are balancing the condo market. An example is the East Village, a new city-supported community development, with condo and rental accommodations alongside retail and other cultural amenities.

Calgary’s office market remains oversupplied, but many tenants are taking advantage of the 23.8% Q2 2018 vacancy rate to move into Class A space. Downtown Class B and C assets have experienced the largest decreases in occupancy.

In this flight to quality in office space, Class B and C asset landlords need to get creative and focus on developing unique, collaborative spaces to keep up with the competition. Cue, The Edison, which transformed from an aging downtown property to an office building of the future.

Calgary’s industrial market also continues to gain momentum, showing positive absorption in 2018. New tenants remain cautious, however, with a focus on last-mile warehousing and fulfillment facilities—driven partly by the popularity of online shopping—and less on true industrial activity.

Know more

The cyclical dance of oil and gas activity has wagged the tail of Calgary’s real estate market innumerable times over the decades. But, western Canada’s oil and gas industry is resilient and so is Calgary’s real estate market.

Want to know more about what’s happening in Calgary? Join me at our annual Emerging Trends in Real Estate event on January 8, 2019, where industry professionals from Calgary’s real estate community will gather to discuss the 2019 edition of the report alongside an in-depth review of the key trends and outlook for the Canada and US real estate markets. Click here to register today.