On February 15, 2023, members of CBRE’s National Investment Team, David Young, Curtis Palmer, Thomas Chibri and Cody Nelson attended the Dentons Canada LLP Edmonton office to provide an update on the current commercial real estate market trends within Canada, with a greater emphasis on the province of Alberta, and more particularly, the city of Edmonton. Below is a summary of the key takeaways of the presentation.

Canada

Over the course of the past year, real estate investment and sales have diminished across Canada due to various reasons, one of which is the increased interest rates. More recently, there appears to be signs that such decline is ending, as both investment and sales are forecasted to grow in 2023.

Alberta

In Alberta, CBRE emphasized that there is ample opportunity for growth within the province. Alberta’s geography provides an opportunity for the province to capitalize on the CA$250 billion hydrogen industry, which it has already began to do by using its natural gas and human capital resources to create hydrogen facilities in the industrial heartland and the Edmonton region. As we see a shift to achieve net-zero emissions nationally, the hydrogen industry is critical for real estate development and investment within Alberta.

Further, Alberta’s lower cost of living (compared to other major cities throughout Canada) and higher purchasing power index, has led to nation leading in-migration and employment growth within the province, which will ultimately lead to a growing real estate market. With Alberta’s increased population, there is greater opportunity for real estate development and investment, in both the commercial and residential sectors.

Edmonton

Similar to the national market, real estate investment and development in Edmonton has dampened over the last six to twelve months, however, the real estate industry is projected to grow over the next year.

The ten key takeaways of the current state of Edmonton’s real estate market are as follows:

1. Lenders have increased targets, resulting in greater competition. This will drive capital markets, as a greater availability of debt will shrink the bid-ask spread between buyers and sellers.
2. Foreclosures on real estate have increased, but not to the extent initially expected.
3. Edmonton is a main hub for the Canadian hydrogen industry and has a first-mover advantage to be a global leader.
4. Downtown office and suburban office leasing vacancy rates are at 23% and 21% respectively, with very little new supply of office space forecasted over the near term. This will help to further reduce vacancy rates over the course of 2023 and 2024.
5. Converted buildings (i.e. repurposing an office tower to multi-family residential units) may lower vacancy rates, but will not solve the problem.
6. Retail vacancy fell from 8% in 2021 to 6% in 2022. Retail development is shifting from downtown to suburban areas. This trend may be impacted by efforts to revitalize the downtown core.
7. The industrial leasing market is strong, with only a 3.4% vacancy rate in 2022. Rising costs and a shortage of available space in Vancouver is driving tenant demand into Alberta.
8. Multi-Family investment volume remains strong, and there is optimism that multi-family investment will continue to rise due to the influx of migration from other provinces, higher employment rates and lower cost of living in Alberta. Due to rental rate caps in other provinces, investors and developers are once again shifting to Alberta.
9. Currently, the main sources of real estate investment capital within Alberta are local private investors, with slight increases in investment from British Columbia, Québec and Ontario.
10. Downtown real estate needs to recover if Edmonton is going to remain a vibrant and attractive city.

Overall, the outlook of Edmonton’s real estate market is promising, however, there is work to be done in certain areas, including Edmonton’s downtown core. Edmonton’s Downtown Recovery Coalition (the DRC) has been working hard to revitalize and advocate for a safe and vibrant downtown in Edmonton by:

1. Lobbying all levels of government and major tenants to revert back to working from downtown office space.
2. Strategizing with local authorities to create a safer environment, including, a safer transit system.
3. Discussing plans with decision makers to create a clean, appealing and welcoming downtown.

The Dentons Canada LLP Edmonton office is a strong supporter of the DRC, and appreciates all of the dedication and work that CBRE, through the DRC, continues to do for Edmonton’s downtown.

For more information on this topic, please reach out to Robert Bothwell or Francesco Deluca.