Edmonton Industrial Real Estate Still the Consistent Performer in an Overall Inconsistent Market
In total, $554 million in commercial sales were recorded in Q3 2019, bringing the year-to-date total to $1.7 billion, a decrease of 45% from the first three quarters of 2018. The total number of transactions year-to-date also decreased by 20% down to 499.
Investor confidence in the Edmonton market has been inconsistent throughout 2019 as the provincial economy continues to struggle with its energy sector. In 2017 and 2018, the market benefited from both public and private buyers capitalizing on opportunities in a down market, however this has not been a consistent source of investment dollars in 2019. The latest results from Altus Group’s Investment Trends Survey showed that capitalization rates for benchmark asset classes in Edmonton have remained flat from the previous quarter. Edmonton was also the only market tracked by the survey that had negative momentum in the buy/sell ratio this quarter amid dampening economic growth due to the ongoing impacts of the energy sector, contractions in the construction sector and overall challenging market conditions, which has led investors to safeguard capital.
(Edmonton Property Transactions – All Sectors by Quarter)
Investment volume in the Edmonton office market plummeted by 78% year-to-date in the same period last year down to $112 million. However, total transactions were down by only 2% year-to-date indicating persistent investor activity in a stressed market. On the quarter, the office market recorded 11 transactions worth a total of $46 million, representing a 90% decrease from the same quarter last year. These large fluctuations in office investment have persisted due to either the presence or absence of major purchases by institutional investors. According to Altus Group’s Investment Trends Survey, office cap rates for downtown class AA product in Q3 2019 continued to rise in Edmonton as more new supply has become available, leading some asset managers to go forward with either residential conversion or repositioning projects.
Although the industrial and retail sectors were the most active asset classes in Q3 representing two-thirds of all activity, year-to-date total volume and transactions were down for both sectors compared to a year earlier. The industrial sector recorded 46 transactions worth a total of $160 million. Edmonton’s industrial vacancy rate has remained relatively stable in a slow-moving economy and investors continue to seek viable assets in prime locations near transit and rail networks as well as value-added assets with potential for redevelopment. Averaging $186 million per quarter going back to the beginning of 2018, the industrial sector has posted consistent results and has been a preferred asset class among local private investors due to a healthy vacancy rate and continued demand for e-commerce.
Edmonton’s retail sector presented weaker results year-to-date compared to the previous year, with volume down by 33% and transactions down by 23%. Q3 2019 presented a 15% increase in volume compared to the same point last year, recording 33 transactions worth a total of $203 million. The retail sector continues to transform across the country as owners are making significant investments in mixed-use development projects combining retail and residential uses. Buyers in the Edmonton market continue to work towards this potential upside in their properties while generating healthy returns in the meantime.
(Edmonton Q3 2019 Property Transactions – Total $ Volume by Sector)
Decreases were also noted in both ICI land and residential land with total land volume declining by 35% year-to-date. The ICI land sector recorded higher sales volume than residential land, however year-to-date investment transactions in this sector dropped by 38% to 146 deals and total volume dropped by 19% to $268 million from the same period last year. Residential land sales volume declined by 29% to $160 million year-to-date with total transactions falling by 22%. Owner-occupiers continue to be active in seeking built-to-suit opportunities in the non-residential land sector, while the residential land sector remains well supplied offering investors attractive options to support future growth in housing once the market stabilizes.
Market fundamentals in Edmonton’s multi-family sector have been moderate but with continued population growth, gains in employment and stable rents, demand for purpose-built rental is expected to strengthen. After three consecutive quarters where sales totals were over $100 million, the apartment sector regressed in Q3 with 10 sales, totalling $28 million. This represents a 69% drop from the same quarter last year. Year-to-date, total sales volume for the apartment sector also fell by 40% to $341 million with transactions down slightly by 8%.
“With the circumstances surrounding the greater provincial economy, the Edmonton commercial real estate market struggles continue through 2019 as investors exercise caution and focus on specific asset classes,” noted Ben Tatterton, Manager, Data Solutions at Altus Group.
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