Commercial real estate bounce-back in Edmonton as office vacancy climbs

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Industrial and retail real estate markets are showing signs of recovery in Edmonton but vacancy rates for office space, especially Downtown, are stubbornly bucking the trend.

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After climbing to 6.8 per cent in the first year of the COVID-19 pandemic, average vacancy rates for the greater Edmonton area fell to 5.2 per cent in the first quarter of 2022, according to a market report prepared by NAI Commercial Real Estate.

Over the same period, the industrial market saw a pronounced recovery with vacancy rates falling from 6.9 per cent to 4.3 per cent. However, the report notes that the trend isn’t tied so much to the rebounding oil and gas sector as diversification efforts, which includes an “influx of large-scale delivery outfits.”

Besides the 2.9-million-square-foot Amazon fulfillment center under constriction in nearby Acheson, Kris Augustson, vice-president of Remington Development Corporation, needs only to point to Discovery Business Park for evidence of the trend; that’s where Amazon and FedEx recently secured facilities just north of Edmonton International Airport.

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“It’s definitely an uptick, and the demand is there,” Augustson told Postmedia in a phone interview. “There are more e-commerce-related groups circling the market right now, so I think we will see that trend continue.”

NAI president Chad Snow said the trend is related to growth on the distribution side of the industry as businesses would rather have more product available locally than rely on supply chains, which come with transportation costs and time delays for overseas product.

“With the push to online (commerce), many businesses are using third-party logistics providers to handle their deliveries and returns,” leading to greater need for logistics space, Snow said in an email statement.

First quarter data from real estate intelligence firm The Network found Edmonton-area industrial properties a popular asset for investors. Warehouses in particular accounted for 26 of 35 transactions in the sector, making up $64.5 million out of $131 million in sales. Compared to a year ago, the firm also reported an average price increase from $160 per square foot to $171 per square foot.

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Food and medical outlets behind retail recovery

Vacancy rates in the retail market saw recovery on a smaller scale after climbing to 5.3 per cent in the first quarter of 2021. A year later, those rates have fallen to 4.2 per cent.

In the Garneau and Whyte Avenue area, however, vacancy rates have been hovering above average — most recently at 7.3 per cent, though down from 9.4 per cent a year ago — while the rate for St. Albert has plummeted most recently to 2.3 per cent , down from 5.8 per cent a year ago.

Snow notes most of the growth in the Edmonton area has been driven by outlets related to food and medicine, such as restaurants, grocery stores, pharmacies and medical supply shops, to name a few.

“There are many more entries into food retailer options, with the delivery trend continuing, with the amount of ghost kitchen space being demanded as well,” he added, citing Markt Brands recently leasing a 10,000-square-foot space in southeast Edmonton as an incubator for those kitchens.

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However, Snow said it’s not the “return of the retailer” in all spaces just yet, since the pandemic has shifted consumer habits through oscillating COVID-19 restrictions and the push to e-commerce.

After introducing the latest round of COVID-19 restrictions during the holiday season, Alberta’s government began rolling them back in February, but for many retailers “it’s still too early to be making bets again,” Snow added, since buying decisions are made six to 12 months in advance “and lease commitments are for years, so the majority of these retailers are cautious.”

The Network found sales in the retail sector flat year over year and in line with 2019 figures. Compared to the first quarter of 2021, however, investment this quarter is up 15 per cent, creeping from $57 million to $65.7 million.

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Office vacancy Downtown above 10 per cent

Meanwhile, vacancy rates in the office market have continued to climb from 7.9 per cent in the third quarter 2021 to 9.3 per cent. The report connects the trend to companies offering employees the option to work remotely.

Out of the six assets it tracks, The Network found the office sector performing weakest, with about $10.5 million in investment over just three sales this quarter.

Surveys conducted at the end of 2021 for business consulting firm Robert Half found that 55 per cent of more than 800 senior managers want their team to work on-site full time as governments ease public health measures.

On the other hand, the firm notes, 53 per cent of more than 500 professionals in Canada said they would look for a new job allowing remote work options if employers required staff to return to the office five days a week. Remote work in the first half of 2021, according to reports from Royal LePage, allowed young professionals with stable employment the opportunity to seek out more affordable and spacious homes further from Edmonton’s core.

In Downtown Edmonton, however, where the office vacancy rate is just above 10 per cent, the Downtown Business Association found 70 per cent of workers are planning to return to their offices in the core.

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