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...
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.
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.
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.
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.