Energy exploration propping up Alberta commercial real estate market: Cities and towns being shaped by oil and gas sector

CALGARY - Billions of dollars invested in unconventional energy exploration is dramatically affecting economic and commercial real estate activity in key North American exploration hubs, including Alberta, creating opportunities for both investors and developers, according to a new report from CBRE Group, Inc.

The report said the new airport terminal in Fort McMurray, the gateway to the Alberta oilsands, is a prime example of some of the changes that are underway.

“Expectations are changing for energy markets in Canada and across North America,” said Ross Moore, director of research for CBRE in Canada, in a statement. “With new technologies and some of the largest oil and gas reserves on the continent, Canadian energy markets are set to experience sustained investment over several decades instead of the traditional boom and bust cycle. This certainly bodes well for local economies and demand for commercial real estate where energy exploration is taking place.”

The CBRE report, Energy Revolution Impact on Americas Commercial Real Estate, said Calgary and Edmonton have been joined by a growing number of cities and towns in the province that are being shaped by the oil and gas sector.

“We continue to see oil and gas activity bolster operations markets like Calgary and Edmonton where low office vacancy rates and significant industrial construction are the norm. Smaller energy exploration markets are also undergoing significant changes,” said Moore. “Robust demand for hotels in Whitecourt and Grand Prairie reflect this, as do rising apartment rents in Cold Lake.”

Greg Kwong, executive vice-president and regional managing director of CBRE in Calgary, said the reliance on the oil and gas industry is still very strong in the local downtown office market.

“But the good thing is that the oilpatch is a lot stronger than it was say 20 to 30 years ago. We have a lot more head offices here and those head offices comprises large chunks of office space,” said Kwong.

“The reliance on the oilpatch has proven to be good historically. If you look at the last 10 years, Houston, Dallas and Calgary have consistently been top office market performers because of the oilpatch. Even during the recession in 2009, Calgary and Houston came out not so bad.”

According to Calgary Economic Development, energy sector employment in the Calgary Economic Region in 2013 was 72,200, a 73.6 per cent increase from 2004. During the same time period, employment across all sectors increased by 27.8 per cent.

Employment in the energy sector accounts for 8.7 per cent of all employment in the Calgary Economic Region.

There are 1,743 energy sector businesses in the region accounting for three per cent of all businesses.

There are 135 head offices in Calgary as the city registered 60.7 per cent growth in head offices from 2003-2012.

Calgary has the highest concentration of head offices in Canada with 10.3 per 100,000 population compared with Toronto which is next with 4.1 per 100,000 population.

Commercial real estate transactions

DALLAS, TX: SALES

Inland Real Estate Acquisitions Inc. purchased Tarrant Parkway Commons, a 56,722-square-foot grocery-anchored retail center at the northeast corner of US Highway 377 and North Tarrant Parkway in Keller. Adam Howells, Kevin Catalani and Jessica Donnelli of UCR Investment Sales brokered the sale with Matthew Tice.

Pappas Harris Properties LLC bought Northgate Business Park 1 Buildings 11, 12, and 13 from Northgate Business Park Inc. The 81,500-square-foot, three-building office-warehouse complex is at the southwest corner of Plano Road and Chartwell Drive in Dallas. TIG Real Estate’s Matthew Hickey and Tom Smolik brokered the sale.

Hisun Motors Corp. purchased a 172,108-square-foot industrial facility at 310 E. University in McKinney. Bob Kent of Structure Commercial negotiated the sale.

FL Shih Investment Corp. bought a 37,530-square-foot commercial property at 9136 Viscount Row in Dallas. Jeremy Mercer of Mercer Co. brokered the sale with KCC Realty’s K.C. Cheah and Pacific Realty’s Alfred Goh.

Herb’s Paint & Body bought a 14,000-square-foot building on 1.3 acres at 9983 West University in McKinney. Eddie Liebman of The Weitzman Group handled negotiations.

DALLAS, TX: LEASES

Ryder Integrated Logistics leased a 51,987-square-foot industrial space at 1200-1216 Trend Drive in Carrollton. Ken Wesson, Adam Graham and Scott Alexander of Lee & Associates negotiated the lease with Shirley Laymance of CBRE Group.

Southside Trim leased 38,550 square feet of industrial space in Centreport 4 at 4300 Buckingham Road in the CentrePort development south of Dallas/Fort Worth International Airport. Blake Anderson and David Eseke of Cassidy Turley negotiated the lease.

PEG Bandwidth LLC leased a 35,088-square-foot warehouse at 3505 Garden Brook in Dallas. Al Taghizadeh of Megastar Realty negotiated the lease with Larry Robbins of Capstone Commercial.

The Holiday Warehouse leased 15,240 square feet of retail space at 2819 W. 15 St. in Plano. Jeremy Cummings and Eric Deuillet of Structure Commercial negotiated the lease.

Paragon Brokerage Inc. leased 14,382 square feet of office space in Heritage Business Park Building VII at 720 Industrial Blvd. in Grapevine. Michael T. Spain of Bradford Commercial Real Estate Services negotiated the lease.

EGistics Inc. leased 12,410 square feet from KBS Realty Advisors in the Tollway North Office Park on Tennyson Drive in West Plano. Justin Miller and Nathan Rylander of Transwestern negotiated the lease.

DBG Loyalty rented 8,333 square feet of office space from Boxer Property at 2300 Valley View Lane in Irving. Mark Dowdle negotiated the lease for Boxer Property.

Texas Child Neurology leased an 8,064-square-foot medical office space at 4032 McDermott in Plano. Debi Carter of Hudson Peters Commercial negotiated the lease.

Spectrum Diagnostics LLC leased 7,215 square feet of office space in Arlington Oaks at 209 Billings St. in Arlington. Judy Nitzinger of Coldwell Banker Commercial DFW negotiated the lease.

Recruit Combine LLC leased 5,397 of industrial space in Oakhollow Business Park at 1220 Corporate Drive West in Arlington. Judy Nitzinger of Coldwell Banker Commercial DFW negotiated the lease with David Dunn of Sperry Van Ness/Dunn Commercial.

Playtri rented 5,300 square feet for a new store in Longwood Plaza at 7171 Colleyville Boulevard in Colleyville. Ward Richmond and Bryson Battle of Colliers International negotiated the lease with Chris Corbin with Venture Commercial.

Heidi’s Salon and Spa leased 5,135 square feet of retail space at 120 N. Main St. in Grapevine. Eric Deuillet of Structure Commercial negotiated the lease.

Nerd Kingdom subleased a 5,088-square-foot office space at 1955 Lakeway Drive within Waters Ridge Tech Center in Lewisville. Henry S. Miller Brokerage’s Dan Spika negotiated the lease with Jeff Schweitzer of Stream Realty.

Plano Urgent Care leased a 5,000-square-foot medical office space at 901 W. 15 St. in Plano. Debi Carter of Hudson Peters Commercial negotiated the lease.

Multifamily Boom Slows

The multifamily industry is on an ascending path, with trendlines pointing to a steady, albeit slow, recovery of the housing market all throughout the U.S metro areas.

The construction pipeline remains active in most markets, with 1,400 properties, 316,010 units, currently under construction, according to the latest data from Pierce-Eislen. The company’s services monitor the 50+ unit apartment universe from the property level to the submarket/market level within 59 United States markets, extending in geography from the Pacific Northwest to the Mid-Atlantic.

Denver, L.A. Metro, Seattle and the Carolina Triangle lead the charts in terms of new apartment development, followed closely by Washington D.C., Northern Virginia, Urban Boston, and three of Texas’s economic hubs, North Dallas, Austin and West Houston.

Common Characteristics

Pierce-Eislen research shows that more than 90 percent of the units under construction possess two characteristics in common: the developments are located in urban environments, and they are positioned so as to serve the two, “renters-by-choice” lifestyle rental categories: wealthy empty nesters (55+), and young professional, double-income-no-kids-households.

The capital source, lender, developer, investor universe all seem to point to the same conclusion: urban, cutting-edge development, fully dressed up, with all the amenities is the one configuration that actually works in the current economic context.

On the other hand, when conducting quarterly comparisons of market data, the apartment industry conditions seem to be weakening. All four indexes of the National Multi Housing Council’s (NMHC) October Survey of Apartment Market Conditions dropped below 50 for the first time since July 2009. Market Tightness (46), Sales Volume (46), Equity Financing (39) and Debt Financing (41) all showed declining conditions from the previous quarter.

“After four years of almost continuous improvement across all indicators, apartment markets have taken a small step back,” said Mark Obrinsky, NMHC’s Vice President of Research and Chief Economist, in a statement. “Conditions cannot continue to improve indefinitely and new development is at least somewhat constrained by available capital – though more on the equity than the debt side. Even so, both the Market Tightness and Sales Volume Index are within hailing distance of the breakeven level and the Debt Financing Index rose despite some rise in interest rates. This bodes well for the apartment industry going forward.”

Key findings of the NMHC survey include:

Mixed sentiments regarding the availability of capital for new development. More than three quarters of the respondents regarded construction debt financing as widely available – 34 percent think both equity and debt financing are widely available, while 43 percent think construction loans are widely available but equity capital for new development is constrained. Only 36 percent think equity capital is widely available.

Market Tightness Index fell to 46 from 55. Conditions vary greatly from place to place, but on balance, most respondents (67 percent) said they saw no change in market tightness (higher rents and/or occupancy rates) compared with three months ago. One-fifth of respondents felt that markets were looser than three months ago, while 13 percent saw tighter markets.

The Sales Volume Index remained at 46. Almost one-third (32 percent) of respondents saw a lower number of property sales, compared with almost one-quarter (24 percent) who said sales volume was unchanged. A plurality of 44 percent regarded sales volume as unchanged.

The Equity Financing Index dipped to 39. Sixty percent viewed equity financing as unchanged – this was the tenth consecutive quarter in which the most common response was that equity finance conditions were unchanged from three months ago. By comparison, 27 percent of respondents viewed conditions as less available and only 5 percent viewed equity financing as more available.

Debt Financing Index rose 21 points to 41. Almost one quarter of respondents (22 percent) viewed conditions as better from three months ago, a sizable increase from eight percent last quarter. Forty-one percent of respondents believed now is a worse time to borrow, down from 67 percent in July.

The survey was conducted October 7-October 16 and included the responses of 64 CEOs and other senior executives of apartment-related firms nationwide.

Foreign buyers boost commercial real estate investment

Summary:  Canadian, European, and Middle Eastern investors, ushered by the hospitable lending environment, are looking to make real estate investments in the U.S.  The new wave of foreign investors have focused on the East and West Coasts. but are projected to move inland toward Dallas and Houston, which have the attractive job growth and population growth foreign real estate investors find attractive.  The asset class is itself an attractive alternative to volatile securities markets.  Foreign investment is expected to reach $350 billion this year, up 30% from last year, though still below the 2007 record of $570 billion.  It is a sellers market as commercial real estate supply is low.

Dallas --(U.S. Dallas News)--
The commercial real estate market is quickly making up ground lost in the recession.

And so far higher interest rates haven’t rained on the parade of investors looking to take advantage of the market.

A surge in foreign investment in this county’s property markets is also underway.

“The amount of capital that is coming from foreign investors in the U.S. is going to accelerate pretty dramatically,” Mark Gibson, executive managing director of HFF LP, told real estate executives meeting in Dallas on Friday.

Gibson said most of the offshore investors looking to boost their U.S. real estate holdings are coming from Canada, Europe and the Middle East.

Increasingly these buyers are spreading out from the large East and West Coast markets to buy in other cities, including Houston and Dallas.

Commercial property investors are focused on locations with the best long-term growth prospects, Gibson told members of the Commercial Real Estate Women Network at the Omni Dallas Hotel.

“They are looking at markets with job and population growth,” he said. “And they are looking for the infrastructure that is going to support jobs and population growth.”

Dallas-Fort Worth and Houston are near the top of the list of the country’s fastest employment growth markets. All of Texas’ major markets are seeing huge population increases — due in part to migration of people and business from other states.

“There are more corporate headquarters moves happening in the U.S. now than we’ve seen ever,” Gibson said. “A stunning amount of corporate America is relocating out of California to other places.”

Gibson said HFF — one of the country’s largest commercial real estate investment banking and property marketing firms — is forecasting about $350 billion in commercial real estate investment in the U.S. this year.

That’s up about 30 percent from last year, but it’s still well below the record $570 billion in 2007.

Gibson said many of the commercial property problems created by the recession have been solved. “Distressed asset problems — that’s yesterday,” he said.

Most of the big bank lenders “have worked through all their [problem properties] for the most part,” Gibson said. “They are on offense instead of defense — they are deploying capital into real estate.”

Even with this year’s higher interest rates, investors are pumping billions into commercial property, Gibson said.

“They are very tired of volatility in the public securities market,” he said. “They think it’s been hijacked by traders.”

Gibson doesn’t see any of the commercial property pricing and construction excesses that were apparent before the recession.

“There is discipline in the market, which there wasn’t in 2007,” he said. “Commercial real estate supply is still modest.”

In fact, he said, “It’s the lowest percentage supply of commercial real estate as a percentage of GDP in U.S. history.”

http://www.dallasnews.com/business/commercial-real-estate/headlines/20131011-foreign-buyers-boost-commercial-real-estate-investment.ece