Commercial real estate rebounds in Edmonton as office vacancy rate rises

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Industrial and commercial real estate markets are showing signs of recovery in Edmonton, but office vacancy rates, particularly downtown, are stubbornly bucking the trend.

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

During the same period, the industrial market experienced a pronounced recovery, with vacancy rates falling from 6.9% to 4.3%. However, the report notes that the trend is not so much related to the rebound in the oil and gas sector as to diversification efforts, which include an “influx of large-scale delivery equipment”.

Besides the restricted 2.9 million square foot Amazon fulfillment center in nearby Acheson, Kris Augustson, vice president of Remington Development Corporation, need only point to Discovery Business Park for proof of the tendency ; it’s where Amazon and FedEx recently secured facilities just north of Edmonton International Airport.

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

NAI President Chad Snow said the trend is tied to growth on the distribution side of the industry as companies prefer to have more products available locally than relying on supply chains, which cause transportation costs and delays for foreign products.

“With the push towards online (commerce), many businesses are using third-party logistics providers to manage their deliveries and returns,” resulting in an increased need for logistics space, Snow said in an emailed statement. .

First quarter data from the real estate information company The network found industrial properties in the Edmonton area to be a popular asset for investors. Warehouses, in particular, accounted for 26 of the sector’s 35 deals, accounting for $64.5 million on sales of $131 million. Compared to a year ago, the company also reported an average price increase of $160 per square foot to $171 per square foot.

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Food and medical outlets behind retail recovery

Retail market vacancy rates have seen a smaller-scale recovery after climbing to 5.3% in the first quarter of 2021. A year later, these rates have fallen to 4.2%.

In the Garneau and Whyte Avenue area, however, vacancy rates have hovered above average – most recently at 7.3%, though down from 9.4% a year ago. is a year old – while St. Albert’s rate has more recently fallen to 2.3%. , compared to 5.8% a year ago.

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

“There are a lot more entries into food retailer options as the delivery trend continues with the amount of shadow kitchen space also in demand,” he added, citing Markt Brands recently leasing a 10,000 square foot space in southeast Edmonton as an incubator for these kitchens.

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

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

The network found that sales in the retail sector were flat year-over-year and in line with 2019 figures. Compared to the first quarter of 2021, however, investments this quarter increased by 15 %, going from $57 million to $65.7 million.

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Downtown office vacancy rate above 10%

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

Of the six assets it tracks, The Network found the office sector to be the weakest, with around $10.5 million in investments on just three sales this quarter.

Surveys carried out at the end of 2021 for Robert Half business consultancy found that 55% of more than 800 senior executives want their team to work on-site full-time as governments ease public health measures.

On the other hand, the firm notes, 53% of more than 500 professionals in Canada said they would seek new employment that allowed 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 Royal LePage reports, has allowed young professionals with stable jobs to seek more affordable and spacious homes further from central Edmonton.

In downtown Edmonton, however, where the office vacancy rate is just over 10%, the Downtown Business Association found that 70% of workers plan to return to their downtown offices.

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