But pipeline decision could impact development

BY MARIO TONEGUZZI, CALGARY HERALD NOVEMBER 1, 2011

CALGARY — The big question for the future of Calgary’s commercial real estate market is whether the United States approves a new oilsands pipeline through Alberta and south of the border in the face of environmental challenges, says a report released Tuesday.

“A go signal could rev up the market to another level,” says the PricewaterhouseCoopers and Urban Land Institute’s new forecast in Emerging Trends in Real Estate 2012, a survey of experts in the field.

TransCanada Corp.’s $7-billion Keystone XL oil pipeline would transport hundreds of thousands of barrels of oil per day from the province to Texas Gulf Coast refineries.

The real estate report listed Canadian markets to watch and their prospects for commercial and multi-family investment and development. It rated Canadian cities on a scale from 1 to 9 or from abysmal to excellent.

For investment, Toronto led the country at 6.70 followed by Vancouver (6.61), Calgary (6.33) and Edmonton (6.24). For development, Vancouver was in the lead at 6.43 followed by Toronto (5.92), Calgary (5.64) and Edmonton (5.47).

“Canada’s hot growth mecca, Calgary can boom and bust suddenly,” says the report. “Down last year in the midst of a too-much-new-development ‘train wreck’, the city rebounds overnight with resurging regional energy companies.

“If you want to gauge Calgary’s prospects, just keep tabs on energy prices.”

Ian Gunn, PwC partner and lead for the private company services practice, said there’s viability for the Calgary commercial real estate market in the long term because of the dependence on the oil and gas sector and the predominance of oil and gas in the economy for North America.

“If the Keystone pipeline gets the go-ahead ... (it’s) a further strong indicator of continued strength in the Calgary marketplace with respect to demand for office space and potentially residential impact.”

Susan Thompson, business development manager of real estate for Calgary Economic Development, said more than 70 per cent of the city’s downtown office space is represented by oil and gas companies or related businesses.

“So when they’re booming, they obviously are growing and needing space and when they’re feeling crunched you’re going to feel the impact there first,” she said.

“Any growth (in the oilpatch) is going to translate into growth in the commercial real estate industry.”

A recent report by Avison Young said Calgary’s downtown office market has seen vacancy drop to 6.2 per cent — a low not seen since early 2009.

The report said companies have been grabbing available space in anticipation of a crunch.

“Amid a eurozone debt crisis that threatens to stifle the global economic recovery and a shaky recovery in the U.S., the Alberta energy sector remains attractive to investment and the implications on the Calgary office market are encouraging,” said Avison Young.

Todd Hirsch, senior economist with ATB Financial in Calgary, said the go-ahead for the Keystone pipeline would be beneficial for Alberta’s economy.

“But the bigger question is how would the province be negatively affected if it does not proceed. That would set a precedent for the oilpatch — a new risk environment in which pipeline projects are blocked because of environmental concerns. That is a different world for Alberta’s economy,” he said.

For 2012, the Canadian real estate market recovery could taper off, only sustained by modest and “not stellar” income growth, says the PwC/Urban Land Institute report.

“Canadian consumers who have been on a spending and homebuying spree, encouraged by low interest rates, could see their self-assurance ebb and job growth has decelerated in response to all the noise about European and U.S. debt woes. Sensing a general slowdown, respondents to our survey are taking a ‘better-to-be-cautious’ investment approach for 2012,” said Lori-Ann Beausoleil, PwC Canada’s Real Estate Leader.

In its 33rd year, Emerging Trends in Real Estate 2012 reflects the views of over 950 of the real estate industry’s experts, including investors, developers, lenders, brokers and consultants in Canada, the U.S. and Latin America.

While the report calls for flat to slight growth in 2012, many of the Canadian interviewees believe “we’re more immune from shocks and less tied to the U.S. hip than ever before.”

Canadian respondents are concerned about overall jobs growth in 2012, says the report.