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.