Distribution space the star as Alberta’s real estate markets fire up

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Amazon’s 2.9 million-square-foot sortation facility in Edmonton’s Acheson area completed during the third quarter. Panattoni Development

Edmonton’s industrial vacancy rate has fallen by nearly a third over the past year as strong demand for logistics space continues.

The city saw nation-leading uptake of industrial space of nearly 3.8 million square feet in the third quarter, according to Colliers International. While much of it was from purpose-built space in two properties, strong demand helped pushed vacancies down to 4.2 per cent versus 6 per cent a year earlier.

“Industrial is heavily driven by distribution, logistics,” said Susan Thompson, associate director of research with Colliers, noting that demand is coming from within the province as well as beyond. “There are a lot of reasons companies are now considering utilizing that. … [You] have well-educated, skilled labour in Alberta. It tends to be more affordable on housing, on rental rates. You have the ability to develop as needed.”

While Edmonton continues to lead the country in terms of vacancies, the strong uptake in space points to ongoing demand despite challenges in segments of some other markets.

While strata industrial space in B.C. is facing headwinds from rising construction costs and longer decision-making timelines, the shortage of options for large-scale users for fulfilment centres has continued. People may be paring back spending, but they’re continuing to shop online and that’s supporting the need for new space to accommodate the demand.

The largest chunk of space absorbed in Edmonton during the third quarter was the 2.9 million-square-foot Amazon sortation facility which completed in the Acheson area.

Demand also remains high in Calgary, where vacancies totaled 2.2 per cent in the quarter, down from 4.9 per cent a year ago.

“Given the lack of available inventory in the market, we’re also seeing inducement compression on new deals, with landlords becoming less willing to fund improvements or offer free rent to the extent that they may have in the past,” Colliers reported. “Pre-leasing on high-quality new developments is seeing strong interest from a variety of groups, both for recently completed buildings and planned or under construction projects.”

Concern about retaining access to space is so great that many tenants are signing renewals or new leases well in advance of their existing agreements expiring.

The torrid pace of industrial activity is in stark contrast to office demand.

Calgary’s office market continues to work through a large oversupply. Vacancies fell to 27.5 per cent during the quarter from 28.6 per cent a year ago even as companies continued to right-size space requirements. Subleases now account for 18.9 per cent of vacancies, down from 22.8 per cent a year ago.

High vacancies have limited new construction in Calgary, unlike in Edmonton where tenants are moving into space purpose-built for them. This has kept overall vacancies in check, falling to 19 per cent, despite some users returning significant blocks of space to the market.

“Office construction is either very specific to a tenant, or it’s for those professional services that are tied to population growth,” Thompson said. “Suburban seems quite popular with some companies because it better enables the return to office because there’s less reliance on public transit.”

The quarter saw 73,625 square feet of office space absorbed during the quarter, all but 148 square feet in suburban markets. But the downtown market is strengthening, with further activity expected now that workers have returned from summer holidays.

“For the first time since the start of the pandemic, two new office construction projects have been announced,” Colliers noted. “Canadian Western Bank Tower in the downtown core is expected to be approximately 350,000 square feet, with only 120,000 square feet vacant once CWB takes possession.”

The tower is set to complete in 2025.

The other project on the books is EVER Square, a 125,000-square-foot medical-office building under construction at Calgary Trail and Gateway Blvd. set to complete towards the end of 2023. The office component is 78,000 square feet.

The positive absorption led to Edmonton office vacancies staying in check at 19 per cent, down marginally from 19.4 per cent a year ago.

Boston-based tech firm has inked a long-term lease on facility near Edmonton that will employ up to 90 tech workers

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A leased industrial building at 220 Carnegie Street, St. Albert, is being transformed into a state-of-the-art manufacturing facility.

Officials at Boston-based Orbia’s Connectivity Solutions business, Dura-Line, are investing in a new state-of-the-art manufacturing facility in the Edmonton suburb of St. Albert, Alberta.

“Not only will this strategic location enable us to meet strong demand in the region, but it allows us to take advantage of the highly skilled labour force in Greater Edmonton,” said Dale Wilson, Dura-Line’s vice-president of sales and marketing in the U.S .and Canada.

Dura-Line, which specializes in developing Internet connection systems, currently ships into Western Canada from plants in Ontario, Utah and Nevada.

“We felt it was time for Dura-Line to put down roots in Edmonton to serve these customers even better,” Wilson said.

Dura-Line has begun retrofitting an existing building to create the 150,000 square-foot state-of-the-art facility in St. Albert and has plans to hire as many as 90 full-time employees over the next nine months – with the goal to be fully operational by spring of 2023.

Dura-Line is owned by Orbia, formerly known as Mexichem, which is a mass-producer of polymers, polyvinyl chloride, and a range of other infrastructure-based plastic products. In 2021, Orbia reported a net revenue of $8.8 billion US.

The St. Albert plant will be Dura-Line’s second Canadian facility. The other, located in Gravenhurst, Ont., is currently manufacturing all of Dura-Line’s products sold in Canada.

The new Alberta facility has been a couple of years in the making, according to Paul Sartori, the director of sales for Dura-Line in Canada.

“We see a significant upside in the Canadian market,” Sartori said in an interview. “It’s time that we step up in Canada and do what we do and really leverage that global footprint that we have.”

“If you’re looking at shipping stuff from Ontario across to Alberta, for example, it gets pretty pricey these days with supply chain interruptions and increased cost across the board,” said Sartori. “It just made more sense to put a point of presence there and support the local economy of St. Albert.”

To get the leased facility operational, Sartori said the Carnegie Drive building is undergoing significant renovations, which are already underway.

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High inflation, rising interest rates, and overall economic uncertainty are driving factors in the expected decline of home sale prices this fall, according to a new report from Re/Max Canada.

The national average residential sale price in Canada is expected to drop 2.2 per cent in the final months of 2022, according to Re/Max Canada’s 2022 Fall Housing Market Outlook report. Out of the 30 markets analyzed, six are likely to experience a modest price appreciation, up to seven per cent. 

In a survey of Re/Max brokers and agents, 22 out of 30 said rising interest rates have affected activity in their local residential market this year, with some indicating that this has been the most significant factor impacting homebuyer and seller confidence. 

According to a new Leger survey commissioned by Re/Max Canada, 44 per cent of Canadians agree that rising rates are compelling them to hold on buying a property this fall, while 34 per cent say they won’t hold. 

Christopher Alexander, president at Re/Max Canada, believes the housing supply shortages are still a significant issue country-wide. “…the current lull in the market is only temporary,” he says, “Until housing supply increases, these ‘boom’ and ‘bust’ cycles will likely be a recurring event.”

Elton Ash, executive vice president at Re/Max Canada, added, “Despite the fact that nearly half of Canadians are waiting to buy or sell a home, we’re confident that as economic conditions improve by mid-2023, activity will resume.”

Highlights from Re/Max’s regional fall housing market insights

Re/Max brokers and agents in Canada were asked to provide an analysis of their local markets this fall and share their estimated outlook for the remaining months of 2022.

Western Canada and the Prairies

• • In regions such as Vancouver, Victoria, Kelowna, and Edmonton, brokers reported fewer multiple offers from buyers and a shift toward more balanced conditions between buyers and sellers.
  • The average home price is expected to decline between zero and 6.5 per cent, with the exception of Calgary and Edmonton.
  • Economic concerns have not had a notable effect on the market in Calgary, which according to agents, has been largely insulated due to its relative affordability. The region is anticipating a modest price increase of three per cent. 
  • In Edmonton, rising interest rates have impacted homes priced from $500,000 to $1,000,000, while those priced at $400,000 or less are still relatively affordable. Edmonton is likely to experience a modest price increase of 1.5 per cent. 
  • Demand for luxury properties in Vancouver and Edmonton remains stable. 
  • Low inventory remains a concern in Kelowna, Victoria, Vancouver, and Calgary and is expected to place upward pressure on home prices in 2023.

Ontario

• • Markets including Oakville, Windsor, Barrie, Durham, Kingston, and Kitchener-Waterloo anticipate a reduction in the number of units sold.
  • Apart from Oakville and Muskoka, average home prices are likely to remain steady or decrease between two to 10 per cent.
  • The luxury market has remained resilient and in demand among buyers in Oakville, contributing to the expected two per cent average price increase.
  • Muskoka is expected to experience a five per cent increase in average residential sale prices. 
  • Peterborough is expected to see a seven per cent decrease in average residential sale prices.
  • The return of conditional offers has been a prevalent trend across the province.
  • Durham, London, Sudbury, Ottawa, the Lakelands, and GTA-Toronto are expected to regain balance in 2023, albeit with low inventory continuing to place upward pressure on prices.
  • Thunder Bay is unlikely to experience any significant fluctuations this fall. 

Atlantic Canada 

• • Charlottetown, PEI experienced immediate impacts as interest rates rose, with the number of sale transactions reduced by almost half on a month-over-month basis, particularly among properties in the $500,000 to $1,000,000 price range. 
  • Most Atlantic Canada housing markets analyzed are expected to experience modest price increases through to the end of 2022, with the outlier being Charlottetown.

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The city will transfer the land to Homeland Housing for a mixed-income residential and commercial development.

A bird’s eye view shows the area at 22 St. Thomas St. that will be the future site of a Homeland Housing project.

St. Albert city council has voted to approve a land transfer agreement with Homeland Housing for an affordable housing unit in the city’s downtown core.

On Sept. 19, council voted to have the city’s chief administrative officer (CAO) approve an agreement to transfer the land — a 1.3-acre parcel in St. Albert’s downtown at 22 St. Thomas St. — for $1.

In early 2020, St. Albert issued an expression of interest to explore options for the downtown site, and selected Homeland Housing’s proposal. The mixed-income residential and commercial development will include a minimum of 55 per cent of units priced at 10 to 20 per cent below median market rates (which for a one bedroom is currently $1,195, and for a two bedroom, $1,355).

Later in December 2021, council directed the chief administrative officer to draw up a land transfer agreement with Homeland Housing.

Originally planned as office space for city employees, 22 St. Thomas St. went up for sale on the open market in 2019 for $3.82 million, but no developers expressed interest, according to an administrative backgrounder. The land is currently valued at $2.65 million.

Lory Scott, the city’s affordable housing liaison, said the proposed project is aligned to council’s strategic goals, and the land transfer agreement “uses an undeveloped resource already owned by the city to provide a long-term community and social benefit.”

During the council meeting, residents Judith Hierlihy and Ken Kachula addressed council to oppose the use of the land for affordable housing provided by Homeland.

“We believe Homeland Housing’s proposed mixed-use building … will not be the catalyst needed to strengthen downtown redevelopment,” Hierlihy said, adding that the need for extra commercial rental space in the downtown is “questionable.”

The two are members of the Neighbours of Lot 22 Committee, representatives of four downtown condo buildings on St. Joseph Street.

In April, the committee addressed council to pitch an office and arts space as another option for the land in lieu of the affordable housing project.

During the Sept. 19 city council meeting, Hierlihy asked council to name the parcel of land at 22 St. Thomas St. “Millennium Park East,” and reserve it for future land development of the committee’s proposed dual civic office building and performing arts community.

While Hierlihy raised concerns surrounding potential tax requisitions the city would pay to Homeland Housing for the project, Raymond Cormie, the executive director for Homeland Housing, told council these requisitions do not apply to community affordable housing.

Homeland Housing only receives tax requisitions for its seniors’ lodge program, Cormie said. The program provides living space, meals, housekeeping services, and recreational opportunities for independent seniors.

Coun. Sheena Hughes asked how much parking Homeland Housing is planning to provide as part of the facility.

Cormie said parking will be worked out as part of the development permit process.

The city and council will see the proposed development design when it is at 50-per-cent and 80-per-cent completion.

Coun. Natalie Joly said facilitating an affordable housing project downtown is central to council’s values.

“This is an exciting next step at a time when the federal and provincial governments have shown interest in funding this kind of collaborative project,” Joly said.

Similarly, Coun. Wes Brodhead said during debate that affordable housing “has been a constant need in our community.”

“One of the stumbling blocks … has always been land,” Brodhead said. “I appreciate this coming forward, and I look forward to a vibrant development in the downtown core that will actually bring people to our downtown and that will just add vibrancy.”

Coun. Shelley Biermanski said in an interview she doesn’t feel the land transfer itself is the right course of action for St. Albert.

“It was just to me an enormous amount of money in value of land for a city of our size,” Biermanski said. “It was not justified to me.”

The motion to approve the land agreement passed 6-1 with Coun. Shelley Biermanski opposed.

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If you’re a homeowner, headlines like “a sharp correction is coming” and “the bubble is about to burst” send shivers up your spine, but they are music to the ears of anyone looking to break into the market.

The extreme downward trajectory of house prices suggested by these headlines and expected in some parts of Canada is not, however, on the horizon in Alberta.

Average home prices in Vancouver and Toronto were already skyhigh going into the pandemic while other Canadian cities have experienced rapid price escalation since COVID became a household word.

Take Moncton, New Brunswick: According to the Canadian Real Estate Association, the benchmark* price of a home on the resale market in the city jumped by 82% between February 2020 and July 2022. With the benchmark at $334,500, it was still a relatively affordable market (the benchmark in Toronto in July was, for example, $1,184,100), but buyers still had to come up with over $150,000 more for a typical home in the area than they did just two-and-a-half years ago.

While markets like Halifax-Dartmouth (+70%), Victoria (+50%) and Hamilton-Burlington (+49%) saw prices spike during the pandemic, Calgary and Edmonton posted solid, but more modest, growth at +25% and +16%, respectively. As such, because a housing bubble didn’t form here, there isn’t one to burst.

At the same time, robust economic growth in Alberta (we will likely lead the country in this regard in 2022), the recent return to being a net recipient of interprovincial migrants, a somewhat younger (though still aging) population, and the high quality of life offered here provide strong support for the provincial housing sector going forward.

As a recent report from Desjardins points out, “the oil-producing provinces of Alberta, Saskatchewan, and Newfoundland and Labrador [are] benefitting from post-pandemic tailwinds, largely in the form of higher commodity prices. The resulting job creation and workers it attracts from across the country will provide support to existing home sales and prices.”

Higher interest rates combined with national and global economic uncertainty may eat away somewhat at home prices in Alberta, but we should be able to avoid the potentially severe erosion that some other markets may experience.

*The MLS® Home Price Index (HPI) model is used to calculate benchmark prices in key Canadian markets. A “benchmark home” is one whose attributes are typical of homes traded in the area where it is located and includes single family homes, townhouse/row units and apartment units.