Daycare boom drives Alberta retail space race as tenant costs rise

Daycare boom drives Alberta retail space race as tenant costs rise

Government funding is driving a boom in daycare operations that’s adding youthful vigour to Alberta’s retail sector.

A mid-year review of national retail markets by CBRE Ltd. notes that daycare operators are booming in Calgary, even as financing for tenant improvements comes under greater scrutiny from lenders.

“It used to be they’d have all their ducks in a row beforehand, but now they’re doing more detailed costing, heavier review of business plans, and it’s just taking longer,” said Alistair Corbett, senior vice-president with CBRE Ltd. specializing in retail properties.

But that hasn’t dampened the appetite of daycare operators, who are crowding the market thanks to federal-provincial funding under the Canada-Alberta Canada-Wide Early Learning and Child Care Agreement.

A For-Profit Expansion Plan launched in February will see up to 22,500 private child care spaces eligible for funding in addition to the 42,500 non-profit child care spaces the province aims to create by 2025-26.


“We had a space come back,” Corbett said. “We put it out for an RFP and we had 14 responses. We got deluged with them. It was just crazy.”

Operator demand is transforming spaces that were otherwise hard to lease, such as restaurants that were shuttered during the pandemic and remain too large for current market demand.

“Very few people want to go and lease 8,000, 9,000-square-foot old restaurants,” Corbett said. “Who’s busy and who’s willing to pay? Right now, it’s daycares.”

Demand for the space being created is being driven another element of the federal-provincial agreement that aims to reduce fees for pre-kindergarten care to an average of $10 per day.

“You can put your kid in daycare for five days a week for less than you can for preschool two mornings a week,” Corbett said. “Parents are definitely taking advantage of the money that’s being given by the government for the subsidized stuff.”

While landlords used to consider daycares a less desireable tenant, given their need for outdoor play areas that lowered tenant density, that’s changed. Play areas can be a convenient use of underutilized parking space, and twice-daily visits by parents mean additional traffic that benefits adjacent businesses.

“It just spins off nicely for the other businesses that are there,” Corbett said. “The landlords have come around to see them as a pretty desireable tenant.”

Daycares aren’t the only alternative operators. Avison Young reports fitness studios have been among the tenants stepping up in Lethbridge, which has also seen strong activity among daycare providers despite higher construction costs.

Spec construction of has largely vaporized, however. Rising construction costs have put the brakes on new options for tenants, pushing up rents in key urban areas of Calgary, including 17th Avenue SW and Kensington Gate.

“There’s never been less space under construction in the city,” Corbett said. “Anyone who wants to open a business here is dealing with a dwindling supply.”

Outside of regional malls, where rents range from $130 to $165 a square foot, Calgary retail rents are running between $25 and $45 a square foot.

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