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October 03, 2006

Downtown Edmonton Economic Report

The following report from Collier's International shows that there is almost no vacancy for office space across Canada. The "Edmonton" section of the report is below, and discusses a number of the factors currently driving the Edmonton economy and housing market. A very interesting read...

DOWNTOWN DYNAMICS
Demand for office space has been stronger than expected over the last few years as Edmonton’s economy has kicked into overdrive. Edmonton office vacancy levels have declined sharply over the last 36 months as a landlords market has taken hold. There is just 556,416 square feet of vacant space available in the downtown area. Positive absorption totalled 244,176 square feet in the first six months of 2006. Vacancy has subsequently been pulled lower to just 3.8 percent. In the last five years, Edmonton has absorbed roughly 100,000 square feet of space annually. This rate is the second lowest in Canada.

The lack of large contiguous vacancies has produced little negotiating power for tenants looking for new space or considering renewing their existing lease. The lack of available space downtown will produce upward pressure on rents. Face rental rates are expected to escalate to over $25 per square foot for the very best space by year-end. Clearly Edmonton is now a landlord’s market, as tenants are now subject to strict lease clauses and fewer incentives. Tenants can expect rental rates to continue to rise.

MARKET DRIVERS
The Edmonton downtown office market has been driven by: rising energy prices, phenomenal investment in the northern Alberta oil sands, strong construction activity, growth in personal income, and strong consumer spending. Greater Edmonton has had a decade of strong economic growth – the greatest of any Canadian city in the past five years and shows no signs of slowing. Gross Domestic Product expanded by 5.3 percent in 2005 and is forecast to expand by a further 3.6 percent in 2006. Having lost 6,700 jobs last year, overall employment is forecast to grow by a solid 2.1 percent in 2006. Gross Domestic Product is expected to expand by an average of close to three percent over the next five years, with personal income increasing by more than four percent annually.

Oil prices have declined recently, but are expected to remain high in the near term. There are $85.7 billion in major projects planned and under construction for Northern Alberta. Oil sector forecast growth looks strong over the next two years. However, labour shortages may delay oil sands projects.

DEVELOPMENT
There is minimal office development slated for completion in downtown Edmonton over the next couple of years. The Devonia building has been refurbished and offers 160,000 square feet of office space for lease. The only other new office space in the market is part of a mixed-use project on Jasper Avenue. The development will deliver 42,000 square feet of new space in 2007. Most downtown tenants are too small to justify the development of a new office tower, which makes this market less attractive to developers.

Several planned projects are in the planning and marketing stages. These projects include: the Royal Bank site at 102 Street and Jasper Avenue, the Petroleum Plaza redevelopment (250,000 square feet) and the Station Lands (2.5 million square feet). These projects will be driven by new tenant commitments which, as of yet, have not materialized. Several large tenants are scrutinizing market opportunities, including the provincial and federal governments. New construction appears imminent as rents reach replacement cost levels.

FORECAST
Healthy consumer spending and non-residential construction will drive continued strength in Edmonton’s economy. A burgeoning oil and gas sector will lift output in the manufacturing sector by 2.6 percent. Employment is expected to rise by an average of 1.9 percent from 2007 to 2010. Continued healthy economic growth is forecast, which will result in demand continuing to outpace supply in Edmonton’s downtown office market.

New suburban projects are under construction and will offer space alternatives for tenants that do not have to operate in the downtown core. Professional services firms including accounting and legal firms will struggle to find suitable space for growth objectives. Most tenants in Edmonton are not large enough by themselves to kick-start a major downtown project, so new supply is likely two to three years away. Rental rates will continue to rise in the interim adding to the expense column of tenant balance sheets.

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A Tenant’s Guide to Renting

The first challenge every tenant faces is finding an apartment for rent that suits their individual needs. For today’s tenant, the most effective apartment search can be done using an online apartment finder. Tenants should decide what they require in an apartment or house rental before beginning their search. For example: the number of bedrooms, location or distance from public transportation and how much the tenant can afford to pay in rent, furnished or unfurnished apartment, etc. By making these important decisions first, tenants can avoid renting an apartment or house only to regret it later. Many tenants today are taking advantage of the convenience of the internet to locate apartments for rent as opposed to the traditional print publications.

Once a possible apartment or home has been found, it is the tenant's duty to thoroughly inspect the premises making a commitment in the form of a security deposit. A tenant should not rely on the landlord or the landlord's agent to tell the tenant if anything is wrong with the property. The tenant must inspect the property carefully and ask questions about it.
Inspecting the condition and functionality of the following areas/features of the apartment before committing yourself as a tenant is highly recommended.
1. Kitchen appliances in working order.
2. Water pressure strong, plumbing without leaks.
3. Electrical outlets and wiring working.
4. Walls and ceiling painted or papered without cracks
5. Ventilation or air conditioning accessible.
6. Floors, railings and bathrooms in good repair.
7. Fire escape easy to use.
8. Stairs safe and well-lighted.
9. No rodents or insects.
10. Heating system in working order.
11. If furnished, check and write down condition of all furniture.
12. Windows and doors operable and weather-tight; screens provided.
The tenant should also check the security of the building to find out if there is a dead-bolt lock, security chain, or through-the-door viewer.
BEWARE OF EXISTING DAMAGES: In order to avoid being blamed for damages that already exist in the rental unit, the cautious tenant should take every step for self-protection. Before moving in (or as soon as possible thereafter), the tenant should make a list of all existing damages and repairs that need to be made. A copy of the list should he presented to the landlord and attached to the lease This way the landlord cannot blame the tenant for damages caused by others and the tenant will know what the landlord intends to repair. If the tenant keeps good records the landlord will not be able to keep the tenant’s security deposit for damages that were actually caused by others. Taking pictures before moving in is also strongly recommended.

ABOUT THE AUTHOR: Paul Rossano, associated with www.AllSpaces.com who “Conveniently Connects All People with All Spaces in All Places” has been dedicated to the Real Estate rental market for over 8 years. He has assisted over 25,000 tenants with their renting needs. Any questions about renting apartments, houses or other rentals, feel free to visit www.AllSpaces.com or email him at Paul@AllSpaces.com.

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