While Edmonton’s downtown commercial real estate situation has been spared the scramble and dilemma of other downtown markets like Calgary and Vancouver, there are big changes happening.
Work-from-home (WFH) and hybrid work routines are impacting the square footage needs of Edmonton commercial clients and, as in other major areas, supply outweighs demand, Edmonton’s downtown commercial real estate actually shows positivity.
“Momentum has accelerated in Edmonton’s office market,” notes the plugged-in Cory Wosnack, principal and managing director with Edmonton’s Avison Young. “Mostly due to vibrant leasing activity in both the downtown and suburban areas, we have achieved a notable three quarter streak of positive absorption, meaning more office space has been leased than was vacated.”
According to the numbers, Edmonton areas which have seen the most significant positive absorption include the Government District, South Side and Windermere. Overall vacancy has decreased 0.3 per cent from the end of 2023.
“By and large, the Edmonton office market remains stable after enjoying three quarters of positive absorption,” explains Mark Anderson, the upbeat vice president at CBRE Edmonton and vice chair of the Edmonton Downtown Business Association (EDBA), responsible for the Edmonton Downtown BIA. “Demand for office remains tepid amidst the shifting paradigm of work, whether it be in the office or at home.
“Rental rates amongst higher quality office buildings have leveled off in part due to the lack of downward pressure that can come from a relative abundance of sublease space, but we do expect some negative absorption before year’s end, as some of Edmonton’s largest office occupiers reconcile under-utilized office space as their leases are renewed or relocated.”
As landlords and developers strategize with creative lease terms, rates and amenities to manage the downtown Edmonton vacancy and absorption activity, a uniquely Edmonton commercial real estate trend also seems to be taking shape. Revitalization!
“For over the last decade, real estate experts have been citing a universal ‘flight to quality.’ It is now more accurate to call today’s priorities as a ‘flight to vibrancy,’ he says. “The qualitative characteristics of a particular property weigh much more heavily on analysis that have traditionally been dominated by quantitative features. The look, feel and activity surrounding a building are paramount for companies as tenants decide if they want to be located there.
“It all feeds back into increasing the value proposition extended to employees to differentiate the work-from-home vs. work-from-office experience.”
Woznack points out that commercial tenants want options and while they certainly still want amenities, location is also a key.
“There is a definite flight to vibrancy, with tenants wanting their office space to be situated in an area that offers access to social, entertainment, business and housing options. In fact, Edmonton stats show that buildings situated in vibrant neighbourhoods are outperforming buildings that are not, regardless of price differentials.”
According to Cameron Martin, director of leasing with Edmonton’s Epic Investment Services, creativity and flexibility are requirements to lease space.
“Commercial developers and landlords are strategizing with amenities and deals like multi-license parking stalls, short-term leases or licence agreements and tenant show suites (or finding ways to modify and update existing improvements). Sublease options are popular cost saving option, usually with newer improvements, shorter terms and aggressive financial terms.
“However, vibrancy is a vital factor for Edmonton’s downtown commercial space. Buildings that have invested in their common areas and amenities – a fitness centre, meeting rooms, tenant lounges, good food and beverage options, bicycle parking, etc. – are the buildings that see the most activity. Business owners are looking for value adds to help encourage their staff to come to the office.”
With nearly seven decades of experience, Qualico Properties, one of the largest privately held development companies in western Canada and an Edmonton community gamechanger, highlights the stats and recent positivity of down commercial space, and underscores the importance of Edmonton vibrancy.
“There was positive absorption in Edmonton’s downtown office buildings in Q4 of 2023, which we haven’t seen for more than five years,” says Jeffery Sutherland, Qualico Properties vice president of national leasing & sales. “It wasn’t huge, but it was positive, which shows we’re heading in the right direction. There is an exciting opportunity for revitalization in downtown Edmonton. Several office towers are ready for upgrades and renovations. Some landlords are already doing this, but there is probably more on the way. Our downtown office rental rates are still some of the lowest in downtown sectors across Canada. Also, it is worth noting how affordable our downtown apartments are compared to other markets. For a big city, Edmonton is still the most affordable.
“While Edmonton’s downtown retail still has a lot of vacancies, it’s a kind of a chicken and the egg problem. It’s hard for retailers to survive without the vibrancy and density and it’s hard to draw people to an area without great retailers and shops.
A real and contemporary commercial real estate factor, for Edmonton commercial developers and tenants, is downtown security.
“Safety is an obvious issue. If people don’t feel safe they are not going to come to an area,” he says. “Without safety, vibrancy will not happen; but, it’s back to the chicken and the egg problem. Vibrancy creates safety. It is important to create safe spaces while simultaneously building vibrancy.”
Qualico’s state-of-the-art Station Lands is a great example of the private sector creating demand and downtown vibrancy.
“We looked at an undeveloped area of the city and decided to stop waiting for demand to come to the area. If we had sat back and waited for vibrancy we never would have put shovels into the ground. So instead, we decided to start building the kind of community we wanted to see in the core, with the belief that vibrancy will come as a result. Edmonton’s DBA has been working hard for the past several years to create events and attractions to bring people into the core.
“The city is investing in public spaces like Warehouse Park, which is set to begin construction this summer, and it can come from the private sector, which is what we are working towards at Station Lands.”
Looking ahead to 2025, Wosnack predicts a continued increase in Edmonton downtown deal activity.
“Despite more transactions being completed, we do not expect a decrease in the vacancy rate, as tenants are finding efficiencies in how they use their space. While many professional services industries are growing, it doesn’t necessarily translate into more space being leased when they sign a new lease.”
Sutherland is positive and enthusiastic, “We see meaningful change in downtown. Safety and security are improving. Pedestrian activity is on the streets. New retailers are opening shops and vying for customers. It’s all there.
“For the balance of the year we are still going to require incentives and mandates, but we still need to keep our foot on the gas, keep pushing, keep making the right decisions and keep investing in the future of our downtown. Now is not the time to wait and see. Now is the time to act.”