By Ayo Peters, Research Manager, Greater Calgary Area
The oil price decline that began in June 2014 led to one of the most painful recessions in Calgary’s history. Most sectors, including commercial real estate were significantly impacted, particularly the downtown office market. Job losses throughout the city took vacancy in office buildings to close to 30%. According to the Labour Force Survey, 43,000 jobs were lost during this period.
Despite these staggering numbers, the industrial market was resilient amid the turbulence. Cushman & Wakefield’s 2017 mid-year industrial report notes that Calgary’s industrial market grew by 2.6% on an annualized basis during this period. Distribution Centers (DCs), essential for eCommerce growth, were largely responsible for the activity in this market. What is more, market data gathered by Cushman & Wakefield’s Calgary Research department finds that DCs were responsible for two-thirds of leasing activity in the Calgary industrial market since 2014.
DCs stock products to be redistributed to wholesalers, retailers and in some cases, directly to consumers. A DC is a vital part in the order-processing and order-fulfillment process. Called different names – DC, fulfillment center, cross-dock facility, bulk and break center and a package and handling center – DCs can be conventional, mechanized or automated. These DCs can also be classified by temperature (refrigerated), operator (manufacturer, 3PL service providers, truckers, couriers etc.) and by goods (food, medicine, cosmetics, apparels, shoes etc.).
Since 2014, Calgary has witnessed a growth in new DCs coming to the market. For instance, Walmart built the Walmart High Velocity Distribution Facility, a 500,000-square foot (sf) DC in Balzac in 2014, as part of its expansion in Western Canada. Similarly, Home Depot Canada opened its 1-million square foot (msf) Stock and Flow Campus in Balzac in 2016.
One notable feature of DCs in Calgary is the way they are “clustered” in certain parts of the Greater Calgary Area (GCA): Airdrie, Balzac and Southeast Calgary. As Michael Porter has noted, companies and industries cluster in a place to take advantage of local knowledge, relationships, research centers, educated and supportive workforce and transportation networks.
So the likelihood of finding a world-class company with distribution center needs operating in a clustered area in the GCA are higher than ever. Porter surmised that clustering is the new way of creating value while improving cooperation and competition. Nowhere is this aphorism truer than in Balzac, a clustered location where DCs take advantage of a low tax regime, no business tax (Rocky View County), a teeming labour pool and excellent transportation systems to create value.
DCs that have clustered in the GCA have been successful because of Calgary’s location and efficient supply chain. Calgary’s location – at the heart of Western Canada and within a 12-hour drive of any major Western Canadian city – is uniquely placed for DCs to thrive. Its supply chain – transportation and logistics – can access a market of 50 million people in Western Canada and the United States within 24 hours.
Future of DCs in Calgary
The fundamentals of Calgary as a location are strong and DCs will continue to form a fulcrum of the industrial market. The fact that contemplative (Bentall Kennedy’s 400,000-sf DC) and Concrete Developments’ (Amazon’s 600,000-sf fulfillment center) only reinforce our prediction that the future of the market are DCs. In fact, Cushman & Wakefield’s industrial experts have for decades been active in the provision and delivery of sale and leasing services to landlords and tenants with distribution center needs.
Ayo Peters is Research Manager for the Greater Calgary Area. In this role, Ayo leads people, priorities and processes across office, industrial and retail asset classes, delivering industry leading insights to our leasing professionals.