“Fears of an office glut are increasing in Alberta’s Capital as the City of Edmonton and developers bid to build more towers on spec in a city where much of the new space remains vacant. The current vacancy rate in downtown Edmonton is around 8.5 per cent, which is considered a “healthy market”, but analysts warn that if all the Class A space being planned proceeds, landlords could soon get a sinking feeling.
With new developments such as the Kelly Ramsey Building underway and slated for completion in 2016 and other proposed developments, there is potentially 1.1 million square feet of Class A office space that would be added to current inventory,” DTZ Barnicke reports. Based on current absorption, it would take 10 years for the office market to return to a healthy state, the report concludes.
Since it was built three years ago, the Epcor Tower downtown remains 30 percent empty with 188,000 square feet vacant. As well, the 174,000 square-foot office tower at 9888 Jasper Avenue, the former ATB Tower, is completely vacant after ATB relocated.
Over the past decade, Edmonton has seen 75,000 square feet to 100,000 square feet of office space leased up each year on average, but in 2013 the downtown experienced negative absorption of 253,000 square feet.
Still, the potential building boom would represent the biggest in 30 years. “There is more serious consideration of new development in the office market right now than at any time since the early 1980’s,” said Avison Young prinicipal Cory Wasnack, who notes that only one new office tower – Epcor – has been built since 1990.
“We predict that 2014 will be a game changing year for the office market – one that will bring excitement from a development perspective and challenges for older existing inventory that faces a new competitive frontier,” Wosnack said.
That could be a wild frontier, especially if the city proceeds with a 450,000 square foot high-rise at 101 Street and 104 Avenue. The city plans to take 350,000 square feet in the building and deliver the rest as spectacular office space. If the tower proceeds – it would be built with Katz Group and WAM Developments – about 300,000 square feet of city leased space in other parts of the city could go dark. At present, the city leases offices various locations around the downtown, including Chancery Hall, TD Tower, HSBC Bank Place and Scotia Place. If a greenlight were given, the City of Edmonton tower would complete in 2017.
Office lease rates in the downtown are already softening, agents note, and could fall further if a glut of space emerges. Class A rental rates now average $23.50 per square foot, according to DTZ, down from $30.59 in 2008.
Avison Young forecasts a recovery in the Edmonton office market this year, with a projected 250,000 square feet leased up in the downtown and another 125,000 square feet absorbed in surburban markets. …..
– WESTERN INVESTOR, MARCH 2014, ALBERT SEC. B.11 –
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