Construction crews work at Cedarglen Living's Seton Summit project in southeast Calgary's Seton neighbourhood.Cedarglen Living
Leveraging neighbourhood amenities such as restaurants, shops and recreation centres to lure condo buyers isn’t new. What has changed is that this is now happening on Calgary’s outskirts.
Infamous for its low density and endless urban sprawl, Calgary seems to be at last embracing apartment living – and both builders and investors are betting on this shift.
As suburban neighbourhoods slowly densified over the past 15 years, the appetite for apartments in these areas was driven by empty-nesters looking to downsize, said Cole Haggins, president of multi-family builder Cedarglen Living – but that’s changing.
Over the past two years, Calgary’s relative affordability has been attracting a growing number of workers from the Toronto and Vancouver areas, and since interest rates began their steady ascent in March, 2022, the apartment segment has experienced a long-awaited boost.
“We’ve certainly seen a slowdown on the single-family due to the interest rate increases,” Mr. Haggins says, noting that condo sales have remained stable in the suburban communities where his company builds.
Moreover, rising interest rates have begun limiting the capacity of some out-of-province buyers to purchase a larger home in Calgary.
“Now we have 7-per-cent interest rates, compared to 2-per-cent rates, and some people can’t afford those homes anymore,” Mr. Haggins says. “Now they’re getting pushed back down into our marketplace and are willing to accept living in a townhome or an apartment building.”
In the third quarter of 2022, the Calgary region recorded more than 10,000 apartment units under construction, the largest volume since 1990, according to CMHC data.
Remarkably, in 2022 the percentage of apartment units under construction not only represents roughly 60 per cent of all residential construction, but a significant number of units are also located on the city’s outskirts.
During the last construction boom eight years ago, only one in five apartment units were being built in suburban neighbourhoods. By the third quarter of 2022, roughly 40 per cent of these units are being constructed near the edge of the city.
Indeed, over the past four years, Cedarglen Living has completed more than 550 apartment units in Seton, a building-out neighbourhood in Calgary’s deep southeast. Currently, two projects featuring a total of 622 condos – Seton Summit and Seton Serenity – are under construction.
In October, Seton recorded the second highest volume of apartment construction activity in Calgary. With 774 units under construction, it trails only the Beltline, in the city’s core, where 943 apartments were being built at the time.
“The draw for this community is the hospital, the YMCA, and the commercial district,” Mr. Haggins says about Seton. “It’s just a well-built community. It was envisioned as kind of the downtown core outside the downtown core.”
With an expected completion date near the end of 2023, Seton Summit is already 95 per cent sold. Meanwhile, having launched sales just last October, Seton Serenity sits at 60 per cent sold, and possessions are expected start in the summer of 2024.
Seton Summit, above, and Seton Serenity will bring 622 condo units to the Seton area once completed.Cedarglen Living
These buyers, however, are not only the downsizers the company catered to up until 2019, Mr. Haggins says, nor people relocating to Calgary from other provinces. “The large majority of sales in the greenfield communities on multifamily have been driven by investors.”
Recent job growth, high incomes and the city’s relative affordability, seem to be rekindling the interest of investors in Calgary. As a result, even though only 20 per cent of apartments under construction are for-sale condos, the prevalence of investors means a large share of these units will end up in the rental market.
“If 60 or 70 per cent of the [condo] units we sell are going to end up rented, they’re essentially the same thing,” Mr. Haggins says.
So far this year, more than 4,700 apartment units have been completed in Calgary, the highest number since 2008 – and in the third quarter, 90 per cent of these units were absorbed at completion.
In the past, Calgary’s construction booms have been followed by economic downturns, halting population growth and stalling condo prices, but despite a looming recession, some have reasons to believe this time will be different.
As Calgary drifts away from the clasp of the energy industry, job growth in the tech and logistics sectors is likely to continue to attract workers not just from Canada, but from all over the globe, said Jeremy Tomalin-Reeves, a real estate development strategist and founding partner of Ignite Strategic, at a recent event hosted by the Calgary Municipal Land Corporation, a wholly owned subsidiary of the City of Calgary tasked with the redevelopment of East Village.
“We can project that by 2025, 30,000 people – international migrants – will be arriving in the city,” Mr. Tomalin-Reeves said in his presentation. “Which translates to about 10,000 new homes.”
For this reason, despite the spike in construction, he reckons the number of apartment units in the pipeline is insufficient. According to Ignite Strategic’s estimate, the supply gap in Calgary’s urban core is going to reach up to 2,500 units a year over the next three years.
And this is good news for Calgary’s long-battered resale condo market.
“We could start to see improvements in the apartment condo sector, especially because there’s not a lot of supply in the lower price ranges of detached, semi-detached and row-houses,” says Ann-Marie Lurie, chief economist at CREB, noting that as rental rates continue to tighten, resale condos are likely to become a more attractive alternative for buyers, whether they’re investors or owner-occupiers.
“I do see demand will remain relatively strong for this type of product,” she says. “Because you’re in a higher interest-rate environment, and there’s less supply of more affordable product.”
And even though there’s no certainty of what 2023 will bring, given the present migration trends, Ms. Lurie doesn’t foresee the oversupply scenario Calgary experienced in past recessions.
“Even though demand has slowed a bit, we’re not seeing supply levels rise,” she said, adding that further hikes to interest rates could affect the construction of the units needed to meet a growing demand.
“Interest rates are key in terms of not just owners buying, but also investors building … so that’s something that could impact supply as we move forward.”