City real estate market a study in contrasts

By Lethbridge Herald on January 18, 2021.

Herald photo by Ian Martens A construction crew works on the roof of a large home being built Monday afternoon in the RiverStone neighbourhood on the city's westside. @IMartensHerald

Almost like a tale of two cities, Lethbridge’s real estate sectors diverged from one another in remarkable ways in 2020.
On the commercial side of things, as might be expected with the severe economic impacts of COVID-19 and ongoing public health restrictions, last year was a fairly bleak year. New home starts were also sharply down in 2020 with 20 per cent fewer single family residential permits being issued by the City of Lethbridge compared to 2019. However, the resale residential real estate market was on a huge upward swing in 2020 with a nine per cent increase in sales over 2019, and ended the year red hot with 81 per cent more houses sold in December of last year compared to December of 2019.
Lethbridge and District Association of Realtors CEO Cathy Maxwell says the strong resale market was driven by historically low interest rates and a reassessment of housing needs with more people working at home during the pandemic.
“I think COVID has caused people to really consider what their home is offering them, and they are making changes,” she says. “Perhaps some employers are saying you can work from home, and they need to make changes to adapt to that. Perhaps they need more space.”
Compared to January last year, local housing inventories have also tightened up, says Maxwell, with a current supply of three and a half months’ worth compared to about nine months’ worth at this time last year. That lowering of inventory has also switched the market over from a buyer’s market into a more balanced market which is favouring the sellers a bit more at the moment. The average home price increased by about four per cent in 2020, confirms Maxwell.
While a lot of uncertainty remains with COVID-19 still hanging around and a difficult economy at the moment, Maxwell is hoping that gangbuster December is a sign of things to come in 2021.
“Overall we had a good year as far as residential real estate is concerned,” she says. “Where that goes in the new year Ñ who knows?”
Building Industry and Land Development Association (BILD) president Perry Neufeld says many developers and builders in the community also seem to be choosing to reset the clock based on the December outlook, and seem to be putting a difficult 2020 firmly in the rearview mirror. Taking advantage of low interest rates, a tight local inventory, and the desire of consumers to readjust their housing to a new stay-at-home pandemic reality, builders took out 19 permits for single family dwellings in December- amazing for a normally slow slow month, says Neufeld.
“From the numbers standpoint, single family home building permits were slower than 2019,” confirms Neufeld. “They were about 20 per cent down from the previous year. However, December, year-over-year, was fairly strong. So it was a fairly strong month moving into 2021.”
Neufeld confesses he is unable to fully account for the discrepancy between consumer demand for residential real estate in Lethbridge, which was quite strong in 2020, and fewer housing starts overall in the city. However, he says, when risks are higher in the marketplace, as we saw in 2020, home builders and developers tend to be more cautious about the new inventory they bring online.
“In the land development and building companies there was also caution in how they were investing, and what their spec programs were going to look like,” he confirms. “Whereas three or four years ago, they would have had quite a few projects on the go when there was a little more certainty in the marketplace. As soon as that uncertainty became something they had to contend with then they had to be a little more creative and cautious in terms of how they presented that product, and brought it online.”
That being said, Neufeld sees the strong permit uptake in December and the fact that Lethbridge is one of the only real estate markets in Alberta that saw an increase in values and sales last year as grounds for increasing optimism in 2021.
“We have the ability as an industry to create housing as required,” he states. “We have (construction) in the community in all different regions depending on where a person wants to live. Coupled with the fact we have historically low interest rates, I think that bodes well in the city’s growth in all areas. I think we are well-positioned to grow the community as fast as it wants to grow.”
Unfortunately the commercial real estate outlook for Lethbridge is not as positive for 2021, particularly on the office side of things, says Lethbridge Avison Young associate Vinko Smiljanec.
According to the year-end report produced by Avison Young, overall vacancy rates in Lethbridge for retail in 2020 sat at about 5 per cent, and should remain consistent in 2021. Office spaces had an city-wide vacancy of 6 per cent in 2020, and this is projected to increase in 2021, the report confirms, with downtown commercial real estate vacancies increased most dramatically. It hovered at about 11 per cent in 2019 but increased to 15 per cent as businesses closed, downsized or simply moved to more suburban areas last year.
“The retail and office sectors definitely got hit the hardest with the lockdowns and that,” Smiljanec confirms.
“Offices are interesting. With everyone working from home, I think the office sector will continue to decrease (in 2021) as companies realize they don’t need to have their employees in office as much. And those office spaces will continue to decrease as those leases come due.”
On the retail side, Smiljanec says he is hopeful that sector has already reached bottom after the raft of closures in 2020, and may well see a rebound at the end of 2021 and at the beginning of 2022 as vaccinations become more widespread and public health restrictions ease.
“On the retail side, I don’t think we are going to see a whole lot more vacancies come up (this year),” he predicts. “I think if you have kind of been able to weather the storm this far, I don’t think you are going to be closing your shop now. Outside of this pandemic, I think we will start to see some recovery later in the year, but it will stay pretty flat until then.”
Smiljanec also says there is grounds for potential optimism on the industrial side as vacancy rates actually decreased in 2020 over 2019, falling from 8.25 per cent vacancy in 2019 to 7.15 per cent vacancy last year.
“The best news of the whole mix is probably the industrial side where most of the industrial users and tenants are essential workers,” he says. “They have been able to keep their jobs and stay busy, and actually that side of the sector has actually expanded if anything. There are very few vacancies for small bays. It seems like everyone I speak to in the construction industry, and the industrial, are all busy.
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