Alberta's real estate industry is in a time of flux

The Alberta economy is in a state of transformation—a situation we see being reflected in the province’s real estate sector. A number of factors have been putting added pressure on Alberta companies, and vacancy rates in our city centres are at an all-time high. In spite of all of this, there are reasons to believe that a comeback is in the works, even if it won’t be fully realized right away.

According to CBRE statistics for the third quarter of 2019, vacancy rates for office space in Calgary and Edmonton are sitting at 24.3% and 20.1% respectively. Those numbers don’t reflect all of the tenants paying rent on empty commercial spaces—those that have no business and no staff but are committed to their leases. Ordinary Albertans are feeling the impact of these empty offices. With fewer downtown commercial operations supporting the tax base, residential property taxes are rising to shoulder the burden.

Still, the real estate industry is as resilient as ever. We see this in our latest Emerging Trends in Real Estate report, which focuses on the future of the industry across Canada and highlights its many nascent possibilities. Lagging growth can generate innovation, and there are several examples of companies turning suboptimal conditions to their benefit—whether it’s revitalizing older developments, investing in digital solutions or making space for small- and medium-sized companies to thrive where larger players are leaving the market.

While nothing can be taken for granted, the Conference Board of Canada is cautiously optimistic about the growth prospects for Alberta. It predicted Calgary’s real gross domestic product would rise by 1.5% this year, but looking ahead to 2020 through to 2023, growth is projected at an average of 2.5%. It’s a similar story in Edmonton, where growth was initially forecast to be 1.3% in 2019 but is expected to increase to 2.3% per year from 2020 through 2023.

So how can the real estate industry help ensure and maintain this upward momentum? Here are some trends I and my colleague, PwC Canada Edmonton Tax Leader David Yee, believe will be especially useful to keep tabs on and take advantage of in the coming months.

A new lease on life for commercial properties

Calgary’s commercial real estate market offers good evidence of the opportunities available. Key real estate players have been making the most of the depressed market to buy older buildings at a premium and repurpose them as successful, mixed-use developments with a much higher occupancy rate than they had before.

Aspen Properties epitomizes this trend, having turned the Class B Encana Place, built in 1981, into the Edison—an amenity-rich Class A tower billed as Calgary’s “HQ for collaborators, innovators and visionaries.” Last year, the company also purchased Sun Life Plaza, where it’ll apply the same forward-thinking approach.

Indeed, CBRE shows us that there’s strong activity in Calgary’s commercial market if you can make the right connections. Those trying to divest assets—often larger public companies—can be matched with investors trying to enter the market or private businesses aiming to increase their presence in the city.

The situation is similar in Edmonton. The city is experiencing a flight to high-quality office properties following a wave of completions, and the owners of older buildings have to consider renovations if they want to stay viable. With new developments adding colour to the downtown core, we’re also seeing a trend of moderate but healthy urbanization, with people gradually making a move from the suburbs to the city centre.

Industrial real estate to the rescue

For both Calgary and Edmonton, the biggest wins have been in industrial real estate, where the availability rates are at 8.7% and 8.0%, respectively. These cities are touting themselves as distribution hubs for all of Western Canada, with significant development taking place near their airports.

In Calgary, much of the interest and investment comes from national and multinational firms, and the industrial market is seeing positive absorption for the 11th consecutive quarter. Many businesses are looking for spaces in excess of 100,000 square feet. To meet this demand, we’re expecting to see another 2.3 million square feet of new industrial space built in the next year—a surge CBRE describes as a “construction binge.”

Edmonton has also seen a growing need for industrial real estate, but because of rising land prices and construction costs, buyers are looking to surrounding communities where property is cheaper and tax rates are lower. As a result, 63.1% of Q3 2019’s 2.9 million square-foot construction pipeline is planned for Nisku-Leduc, including a new Amazon distribution centre location in Border Business Park.

New opportunities in unprecedented times

As these trends show, it’s an unprecedented time for the real estate industry—both in terms of Alberta’s economic challenges and the significant shifts that are playing out in the market. But for those willing to play the long game, Alberta offers many opportunities for realizing solid, steady growth in the years ahead.

Have questions about Alberta’s real estate landscape? David and I are always looking to continue the conversation. Please reach out to either of us any time.

Ian Gunn,  CPA, CA CMA, Calgary Real Estate Leader, | Partner, PwC Canada

T: +1 403 509 7543

Email: [email protected]

David M. Yee, Partner, Tax Services, Edmonton Real Estate Leader

T: +1 780 441 6811 | F: +1 780 441 6776

Email: [email protected]