Vacant Condos Create Unease in Calgary Market

Jared Chamberlain — Wed, 11 Feb 2009 15:55:42 +0000

The Altus Group Housing Report said most of the unsold units in Calgary are already completed or under construction and the expected decline in new condo apartment sales this year could lead to a “sizable” increase in the number of completed and vacant units.

“Many buildings in Calgary began construction with less than 50 per cent of the units pre-sold,” said the Altus Group Economic Consulting report.

There are indicators of a “much more serious problem for Calgary,” said the Altus Group. Those indicators include a high level of condominium starts in 2008 (5,335 units) and a high level of condos under construction. The pace of condo starts has also declined “dramatically” since the end of July, but “very few projects in Calgary have been formally cancelled so far.”

The biggest cancellation was the two-tower downtown project known as Gateway Midtown.

“Excessive investor activity has also been a concern in Calgary,” said the Altus Group report. “While the percentage of condominium apartment units offered for rent declined in Calgary between 2007 and 2008, the vacancy rate rose significantly from 0.7 per cent to 3.5 per cent.”

The report said there is “clearly a large oversupply of product” in Calgary and “more project cancellations would help move the market back into balance more quickly.”

One of the reasons overbuilding tends to happen in a number of markets is due to the difference in construction times between single-family homes and condos, said Robert Feldgaier, senior director with Altus Group.

“With ground-related housing, it’s a lot easier to adjust construction to changing market conditions, whereas with the lead time for apartment construction and the actual time to build a building, depending on the market, there’s a significantly longer lag in adjusting to the market conditions,” said Feldgaier.

In Calgary, most of the projects that have been on the market have proceeded to construction even if they haven’t achieved even half of the units being sold, he said, adding “there’s not likely to be too many new projects starting this year.”

The lower level of multi-family starts in Calgary has been a trend since the middle part of last year, said Lai Sing Louie, senior market analyst in Calgary for Canada Mortgage and Housing Corp. The number of condos under construction hit a peak, and record, of 10,746 units in Calgary in May 2008, he said. Last month, that number had dropped to 7,351 units.

Louie said the percentage of condos absorbed, or moved into, at completion in January was 82.5 per cent. In September, the percentage was 100 per cent.

Also, in the resale market the CMHC tracks new and vacant listings. In January, 8.1 per cent of condos on the resale market were new and vacant. In November, it was 9.5 per cent, said Louie.

He said there were only nine condominium starts in January and for the City of Calgary there were zero apartment building permit applications for the month.

The Altus Group report said that with mortgage rates already near historic lows, unlike the last recession, “developers need to ensure that their product is priced appropriately since affordability will be key to attracting buyers.”

“Developers should look for opportunities to target younger owner-occupant buyers seeking attractively priced product as well as empty nesters in neighbourhoods where there may still be relatively few projects from which to choose,” said the report.

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Vacant Condos Create Unease in Calgary Market