Lethbridge industrial market insights - April 2022 - Avison Young
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Lethbridge industrial market insights April 2022
Table of contents
Section 1 Canadian markets
Industrial drivers:
• Economic conditions
• Recovery rate
• Industrial demand
• Canadian vacancy rates
Section 2 Alberta economy
Industrial drivers:
• Availability
• Growth
• Alberta budget
• Effects of the Russia & Ukraine conflict
Section 3 Lethbridge
Industrial drivers:
• Agri-business
• Labour force
• New development
• Property in Lethbridge
• Lethbridge market report
• Lethbridge 2022 outlook
© 2022 Avison Young Lethbridge (2016) Inc. All rights reserved.
E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young Lethbridge (2016) Inc.
Section 1 Canadian markets
Canadian industrial drivers
Key takeaways
Economic conditions Recovery rate Industrial demand
• With current supply-chain • As of Wednesday March 2, 2022, • Inventory for Industrial property
shortages, economic sanctions, the Bank of Canada raised is at a market low in most areas
and political uncertainty, inflation interest rates for the first time of Canada.
in Canada – which was already since 2018.
trending up – increased further • While COVID-19 measures saw
to a three-decade high. • The Bank of Canada has decided to increased vacant office space,
raise interest rates incrementally the industrial sector prospered,
• Real-estate, as an investment, as they watch the market closely. especially distribution and
holds its value against inflation warehousing. These trends
over the long-term. continue in 2022.
page 4 Lethbridge industrial market insights
Inflation in Canada hits 31-year high
Inflation 12-month per cent change in consumer price index
“Companies have shifted towards owning versus
leasing property so that they can control their
costs. Given the nature of uncertainty that
inflation brings to lease rates, utility costs, and
other operational expenses etc. purchasing
property promotes security and capital
management. New facilities may be expensive,
but they can also be amortized over longer
periods of time and will also build into their new
facilities green technologies that will help stabilize
their costs.”
Graph Source: Bloomberg, Statistics Canada
- Josh Marti, Senior Associate, Avison Young
page 5 Lethbridge industrial market insights
Interest rates Canada inflation and interest rates
The low interest rates of the last two years drove
the ‘real-estate frenzy’ and kept the economy
stimulated during the pandemic. Due in part to
this, inflation has rapidly increased since 2022
and is likely to continue. A 0.25% increase to
interest rates is the first of several impending
hikes as an act to counter inflation.
“After a solid end to 2021 when the economy
grew at an annual rate of 6.7 percent, the central
Note: The Bank of Canada cut rates three times in March 2020
bank now sees growth in the first quarter of 2022
Graph Source: Bank of Canada, Statistics Canada
to be stronger than previously forecasted.”
- Tiff Macklem, Governor, Bank of Canada
page 6 Lethbridge industrial market insights
Commercial property price index, by sector Industrial demand Demand for warehouse space in Canada far outweighs supply, setting the stage for a boom in industrial construction. Canada needs another 40 million square feet (sf) of warehouse space over the next five years to keep up with demand after online sales rose 32% last year, according to CBRE figures reported by Bloomberg News. That’s more than three times the combined total of warehousing space in Canada’s three tightest industrial markets —Toronto, Vancouver, and Graph Source: Real Capital Analytics Montreal. page 7 Lethbridge industrial market insights
Canadian industrial vacancy
Canada industrial market - Q4 2021
Canada Industrial Market - Q4 2021
New Supply -
New Supply -
Inventory Vacancy Availability Absorption Under Average Asking Rental Rates
Completions
Construction
Average Average Average
Total Total Total Total Total Industrial Total Industrial
Total Inventory Total Asking Net Additional Gross
Vacancy Availability Availability Absorption Area Under Building
(SF) Vacancy (SF) Rent Rent Rent
(%) (SF) (%) (SF) Construction (SF) Completions (SF)
($PSF) ($PSF) ($PSF)
Calgary 149,673,504 4,953,262 3.30% 7,139,895 4.80% 1,197,900 5,574,299 262,031 $10.15 $5.37 $15.52
Edmonton 160,456,191 9,171,719 5.70% - 0.00% 1,374,816 5,118,282 - $10.28 $4.59 $14.87
Halifax 8,430,844 275,000 3.30% 275,000 3.30% - - - $8.00 $5.45 $13.45
Lethbridge 10,022,594 354,618 3.50% 354,618 3.50% 14,338 100,000 5,000 $8.58 $3.74 $12.32
Regina 24,412,256 789,689 3.20% - 0.00% - 192,316,402 - $12.65 - $12.65
Toronto 902,867,038 5,286,485 0.60% 8,118,444 0.90% 2,934,126 14,014,722 2,200,320 $11.74 $3.88 $15.62
Vancouver 215,361,177 1,150,192 0.50% 2,336,121 1.10% 2,467,097 8,099,300 1,432,018 $16.28 $4.92 $21.20
Winnipeg 79,002,469 2,554,950 3.20% 2,554,950 3.20% 403,678 448,190 - $9.48 $4.65 $14.13
Canada 1,550,226,073 24,535,915 1.60% 20,779,028 1.30% 8,391,955 225,671,195 3,899,369 $10.90 $4.66 $15.55
Data Source: Avison Young
page 8 Lethbridge industrial market insights
Section 2 Alberta market “At the provincial level, I believe Alberta is poised for strong industrial growth as the industries are diversifying and hedging their operations with new green technologies. As this optimism spurs on new growth, there is large amounts of industrial land available to build on and to develop further growth.” - Josh Marti, Senior Associate, Avison Young
Alberta industrial drivers
Key takeaways
Availability Growth Alberta budget
• Due to the low interest rates, • High demand and a ‘slowing • With the Alberta Budget released
many groups have looked to own down’ of new builds have created on February 24, 2022, economic
their real estate rather than a relatively tight market for indicators trend towards
lease. available space. positive growth with the Alberta
Government announcing that they
• The advantages of owning • Supply chain issues for expect full economic recovery.
are substantial. The difference construction projects increase the
between lease payments and build time and causes the price
the actual mortgage payments to increase, leaving the finished
provides additional cashflow to product more expensive than
the owner. anticipated.
• Inflation in Canada is 5.7% and
inflation in Alberta is 5.5% as of
page 10 Lethbridge industrial market insights February 2022.Canadian industrial markets at a glance
Availability
Alberta, has a very strong property market.
However, it is a seller/landlord’s market as
inventory is tight, especially in the medium to
large format spaces.
With the increased price of building materials,
National industrial supply & demand
users have preferred to lease or purchase Net absorption & new supply (MSF)
existing product over pursuing new builds.
Due to lack of inventory, tenants will be
compelled to lease new build-to-suit spaces;
these new spaces will be priced higher and over
time this will increase market rates.
page 11 Lethbridge industrial market insights Graph & Map Source: CBRE Research, Q4 20212021 Oct. 2021 Dec. 2021
Investment Softwood Lumber Building Permits
Growth
Production
$54.1B $1.2B
774,000
(m3)
During the COVID-19 pandemic, lumber and
11.2% YR / YR Change -6.2% YR / YR Change 30.0% YR / YR Change
other building materials skyrocketed to all-time
Source: Government of Alberta
highs. After a volatile year, experts are predicting
Madison’s top six benchmark dimensions
prices to generally reduce to a sustainable level, Softwood lumber and panel prices
however, it is unlikely that they will return to pre-
Covid levels in the near future.
With lumber prices set to remain high, it means
builders and contractors will be forced to charge
higher rates.
page 12 Lethbridge industrial market insights Graph Source: Madison’s Lumber ReportSupply chains in Canadian business
Despite supply chain pressures, manufacturing sales grew over 30% in Alberta in value last year (2021), with double digit
increases in food, wood and refined petroleum products.
Image Source: Statistics Canada, Canadian Survey on Business Conditions
page 13 Lethbridge industrial market insightsAlberta budget (2022)
Alberta projected GDP growth
2025
Alberta’s economic recovery from the global
pandemic and the oil price crisis far exceeded 2024
expectations last year.
2023
Following a 7.9% contraction in 2020, GDP grew
2022
an estimated 5.8% in 2021, with nearly all sectors
of the economy rebounding. The province’s 2021
economy is expected to fully recover to 2014
levels this year, expanding by 5.4%, and be 2020
among the nation’s growth leaders. 2020 2021 2022 2023 2024 2025
Previous -7.9 -7.9 5.8 11.2 14.7 17.7
Business investment is set to accelerate this Growth 0 5.8 5.4 3.5 3 2.8
year, underpinned by strong energy prices and Data Source: Government of Alberta
Alberta’s competitive tax regime.
page 14 Lethbridge industrial market insightsEconomic indicators
Dec. 2021 Dec. 2021 Dec. 2021 Feb. 2021
Wholesale Trade Merchandise Manufacturing Business
Exports Sales Incorporations
$7.7B
$14.2B $7.7B 4,012
17.2% YR / YR Change 61.3% YR / YR Change 31.6% YR / YR Change 7.2% YR / YR Change
Source: Government of Alberta
Provincial
Indicator Period Current growth compared to the last 10 years
Ranking
Image Source: Government of Alberta
page 15 Lethbridge industrial market insightsThe Russia & Ukraine conflict “It is a heavy time in the world right now. As a people-focused organization, we care deeply about the humanitarian impact of Russia’s attack on Ukraine. Our hearts are with the civilians caught in the middle of this international crisis – those living in a war zone, those leaving everything to flee to safety and those who are being jailed and attacked for protesting their own country’s actions.” - Avison Young Canada page 16 Lethbridge industrial market insights
Economic uncertainty and investing By staying focused on long-term goals and having a well-diversified portfolio, short term declines and volatility will have little effect on capital in the long-term. Real estate investment was recently highlighted by Avison Young UK as an ‘inflation hedge’ supported by market trends over the long-term. During periods of economic instability, real estate investment is implicated in two main ways: • Reduction of capital flows due to international sanctions/trade barriers • Impact of inflation and higher interest rates. Over time, real estate offers a more reliable and predictable level of capital value protection against inflation. Real estate holds an important role in the portfolios of many long-term investors who regard predictability and security of capital preservation as an important investment objective. For more information visit: • https://www.atb.com/wealth/good-advice/markets/economic-sanctions-and-investing/ • https://www.avisonyoung.com/is-real-estate-an-inflation-hedge page 17 Lethbridge industrial market insights
Economic sanctions Trade with Russia continues to be obstructed by economic sanctions, most notably against the import of oil and gas. While gas prices are volatile in an uncertain market, Alberta can still rely on a strong economy based on oil, gas, and agriculture. “In Lethbridge, we are not as dependent on the oil and gas sector, however if prices are high, we do benefit as higher prices mean more tax revenue and royalty revenue. This then leads to more infrastructure spending throughout the province, which helps our construction sector.” -- Doug Mereska, Managing Director, Avison Young page 18 Lethbridge industrial market insights
Section 3 Lethbridge market “If there is any community in Alberta that can make the claim of balanced growth, it is Lethbridge. And, we continue to see this claim supported through tracked economic indicators like Gross Domestic Product (GDP) along with annual rankings and reports.” - Economic Development Lethbridge
Lethbridge industrial drivers
Key takeaways
Agri-business Labour force New development
• Agri-business is a key economic • Lethbridge has a strong, highly • Developments in Lethbridge
driver in Lethbridge and insulates educated work force; industry include the Lethbridge Regional
the city from extreme market and research expertise as well as Airport (YQL) expansion, the
swings in the price of oil and a reputation of collaboration Exhibition Park expansion, and
gas (which much of Alberta is continue to add to business new industrial parks within the
dependent upon). diversity and opportunity. City and County.
page 20 Lethbridge industrial market insightsAgri-business
“Agri-business is growing in Lethbridge. There
are companies looking to open up value-add
processing facilities in the Lethbridge region.
They generally require significant infrastructure
investments by both the user as well as the
municipality. With the province having increased
revenue, this will hopefully lead to the province
assisting with these expensive infrastructure
upgrades.”
- Doug Mereska, Managing Director, Avison Young
Image Source: University of Lethbridge, Dhillon School of Business
page 21 Lethbridge industrial market insightsExhibition Park
expansion
The 268,000 SF Agri-food Hub and Trade Centre,
will serve as an economic driver of growth for
Alberta’s food sector. Once completed in 2023,
the Agri-food Hub and Trade Centre is expected
to contribute more than $90 million annually to
the regional economy.
Image Source: Exhibition Park, agrifoodhub.ca
“Alberta’s agriculture and agri-food sector is a
cornerstone of our economic recovery plan,”
Premier Jason Kenney said; “This investment will
help get Albertans back to work now and will
fuel the long-term growth of Alberta’s dynamic
agriculture industry.”
- Jason Kenney, Premier of Alberta
page 22 Lethbridge industrial market insightsWheat prices
Wheat prices were already trending high when
the Ukraine / Russia conflict began. Daily wheat prices
US$ per bushel, CME wheat futures, closing price
As the Ukraine and Russia export about 25% of
the international wheat supply, there are signs
that food price inflation will be extreme in wheat
and agriculture.
Canada is the world’s sixth largest wheat
producer.
Graph Source: barchart.com, ATB Economics
page 23 Lethbridge industrial market insightsLabour market While the stable and supportive business environment of Lethbridge certainly adds to the likelihood of success, businesses also benefit from the intelligent, skilled workforce that is supported by two quality post-secondary Image Source: University of Lethbridge (top), Lethbridge College (bottom) institutions and one of the largest federal government agriculture research centers in Canada. page 24 Lethbridge industrial market insights
Employment rate Jan. 2022
Employment
Jan. 2022
Unemployment Rate
Unemployment in Alberta is now back to pre- $2.3M 7.2%
pandemic levels.
The current economic cycle is starting from a
5.4% YR / YR Change -3.6% YR / YR Change
point of low unemployment and skills shortages
Source: Government of Alberta
in many sectors, and an acceleration in wage
increases that is already evident in many
Alberta’s unemployment rate
countries. %, monthly, seasonally adjusted
page 25 Lethbridge industrial market insights Graph Source: Statistics CanadaLethbridge CMA labour market information
Labour Force Indicator 2017 2018 2019 2020 2021
Population of Working Age 97,800 99,700 101,900 104,000 105,300
Labour Force 67,400 66,200 65,600 66,300 67,800
Employed 63,400 62,600 62,700 61,100 4,100
Unemployed 4,000 3,600 2,900 5,200 4,100
Not in Labour Force 30,400 33,400 36,300 37,600 37,600
Participation Rate 68.9% 66.4% 64.4% 63.8% 64.4%
Employment Rate 64.8% 62.8% 61.5% 58.8% 60.5%
Unemployment Rate 5.9% 5.4% 4.4% 7.8% 6.0%
Note: The Lethbridge CMA is a geographic area comprised of the City of Lethbridge and the adjacent County of Lethbridge situated around the urban core.
Data Source: Statistics Canada, Labour Force Characteristics by Census Metropolitan Area
page 26 Lethbridge industrial market insightsMajor employers Top 45 employers
Lethbridge, AB
Forty-five businesses and organizations employ
more than 20,000 people in Lethbridge, which is
approximately 32% of the employed workforce.
• The top 10 major employers in Lethbridge
39%
contribute 13,500+ jobs to the local economy.
• Manufacturing and logistics jobs among
35%
major employers have increased by 20% over
the course of the last decade while major
employers in the city have increased their job
totals by 20%. 16%
10%
• The public sector employs over 12,000
people, which accounts for almost 20% of the
employed workforce in Lethbridge.
Manufacturing / Logistics Agri-food
Retail / Hospitality Financial
Data Source: Economic Development Lethbridge
page 27 Lethbridge industrial market insightsOpportunities
Lethbridge, AB
Industrial Business Parks
New development Residential Growth
Commercial Growth
With a central location, diversified economy, and
strong labour market, Lethbridge is well-suited
for industrial and agricultural business centers,
logistics, and distribution.
Lethbridge is a great facilitator of growth and
development as can be seen in the range of
projects in progress.
page 28 Lethbridge industrial market insights Map Source: Economic Development LethbridgeLethbridge Airport
expansion
Expansion of the airport will also enhance
Lethbridge business and be a driver for
development. As Lethbridge becomes a non-
stop destination, professionals and investors
from larger Canadian centers can fly direct to
Lethbridge.
Image Source: Global News (top), CBC (bottom)
“YQL is vital to the economic development,
economic prosperity and tourism for the City of
Lethbridge and the entire region.”
- Chris Spearman, Former Mayor, City of Lethbridge
page 29 Lethbridge industrial market insightsNew development
North Lethbridge
• Sherring Industrial Park
• 21 acres Warehouse District development
South Lethbridge
• Lethbridge Airport has 37 acres of available
industrial land
West Lethbridge
• West Lethbridge Employment Centre 1,453
acres of available industrial land Image Source: Sumus Property Group, Sherring Hub Industrial Centre
County of Lethbridge and area
• Broxburn Business Park, consisting of 122.4
acres of industrial land
• New 147 acres Industrial Park Development
East of 43rd Street North
page 30 Lethbridge industrial market insightsProperty Non-residential real estate
Lethbridge, AB
in Lethbridge
Lethbridge has a wide variety of commercial real
estate both within the city and in the surrounding 32%
region.
There are close to 12.5 million square feet of
leasable property in Lethbridge: 7.5 million 8%
commercial, 4 million industrial and 1 million of 60%
office space.
New development includes:
• $1 billion in non-residential construction over
the past 10 years.
Commercial Office
• $1 billion+ in industrial, institutional and retail
private and public sector projects planned or Industrial
underway since 2019. Data Source: Economic Development Lethbridge
page 31 Lethbridge industrial market insightsIndustrial market data
LethbridgeLethbridge
industrialIndustrial Market Data
market overview
Inventory Vacancy Availability Absorption New Supply - Under Construction New Supply - Completions Average Asking Rental Rates
Total
Total
Total Total Industrial Area Total Industrial Average Average
Total Inventory Total Vacancy Total Total Industrial Total Industrial Building Average Gross
Date Availability Absorption Under Area Asking Net Additional Rent
(SF) (SF) Vacancy (%) Availability (SF) Area Completions (SF) Rent ($PSF)
(%) (SF) Construction Preleased (SF) Rent ($PSF) ($PSF)
Preleased (%)
(SF)
2018 9,926,686 209,800 2.1% 209,800 2.1% 94,306 124,800 87,500 70.1% 102,306 $8.15 $3.35 $11.50
2019 9,978,356 395,000 4.0% 395,000 4.0% -102,000 46,000 43,000 93.5% 51,670 $8.16 $3.15 $11.31
2020 10,017,594 442,891 4.4% 377,815 3.8% -98,000 16,000 5,000 31.3% 39,238 $8.10 $3.61 $11.71
2021 Q1 10,017,594 388,155 3.9% 388,155 3.9% -63,168 6,772 0 0.0% - $8.21 $3.84 $12.05
2021 Q2 10,017,594 338,155 3.4% 338,155 3.4% 1,766 6,772 0 0.0% - $8.20 $3.76 $11.96
2021 Q3 10,017,594 340,280 3.4% 340,280 3.4% 1,766 6,772 0 0.0% - $8.31 $3.77 $12.08
2021 Q4 10,022,594 354,618 3.5% 354,618 3.5% 14,338 100,000 25,000 25.0% 5,000 $8.58 $3.74 $12.32
Data Source: Avison Young
Quick stats (2021)
3.5% 5,000 SF $8.58 PSF 100,000 SF
Overall Lethbridge New supply completed in Average asking net rental rate for Total industrial area under construction
industrial vacancy rate Lethbridge in Q4 Lethbridge industrial buildings during Q4 in Lethbridge
page 32 Lethbridge industrial market insights2022 trends
for Lethbridge
In 2021, repercussions of the COVID-19 pandemic Industrial property prices
Construction in Canada
have caused the Lethbridge vacancy rate to drop
to 3.5% and the average rent has climbed to $8.58
PSF.
Due to increased costs and lack of inventory, we
predict that new spaces will be priced higher,
approximately $9.00 - 10.00+ PSF and over time
this will increase Lethbridge market rates.
Date: February 3, 2022 Chart Source: Statistics Canada, Real Capital Analytics
page 33 Lethbridge industrial market insights2022 trends for Lethbridge Lethbridge has invested in infrastructure development that will facilitate the growth of Industrial business, specifically agri-business, manufacturing, logistics and distribution. In its position between the primary markets of Calgary, Edmonton, and the US / Canada border, Lethbridge seems to get reginal spin off from those larger hubs. -- Vinko Smiljanec, Associate, Avison Young page 34 Lethbridge industrial market insights
Have questions? Ask the experts. Doug Mereska Josh Marti Vinko Smiljanec Managing Director Senior Associate Associate Investment Industrial Industrial 403 942 0064 403 942 0144 587 425 5745 page 35 Lethbridge industrial market insights
Information sources Section 1 Canadian markets • Avison Young • BNN Bloomberg • The Globe & Mail • Lethbridge News Now • McGill University Section 2 Alberta economy • ATB • Avison Young • CBRE Group • Government of Alberta • The Real Deal Real Estate News • Statistics Canada Section 3 Lethbridge • ATB • Avison Young • City of Lethbridge • Economic Development Lethbridge • Exhibition Park • Global News • Lethbridge Herald • Lethbridge News Now • Real Capital Analytics • Statistics Canada
For even more market insights and information visit avisonyoung.com Avison Young 550 W T Hill Boulevard South, Unit 40 Lethbridge, AB, T1J 4Z9 © 2022 Avison Young Lethbridge (2016) Inc. All rights reserved.
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