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The Downtown Momentum

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Downtown Edmonton, in commercial real estate terms, is a focused, re-imagined and an encouragingly rebounding work-in-progress. There are positives and, yes, there are lingering challenges.

Some of the positives include The Parks, the massive and stunning mixed-use residential and commercial complex in the warehouse district; the dazzling, new 16-storey CWB Financial Group in ICE District and significant investments of major office building renovations.

They almost mask the facts-of-downtown-life challenges and realities, such as competing with the retail exodus to West Edmonton Mall, redefining what people prefer in the downtown core, the shrinking need for office space triggered by work-from-home trends and safety concerns.

A vibrant downtown is critical for Edmonton’s present and future. Not only for traditional and essential downtown factors like attractions, retail and places to work but also as a major source of City revenues. According to the Downtown Business Association (EDBA), Edmonton’s downtown represents almost 10 per cent of the city’s tax base.

“Of course, the many positives are exciting and are important,” says the dynamic Puneeta McBryan, EDBA’s executive director. “All of the challenges essentially boil down to having too little density and insufficient foot traffic to sustain the mix and concentration of businesses that Edmontonians want and expect. It is due to low residential density for a major city’s downtown of only 12,000 or so residents and the loss of tens of thousands of commuting office workers who used to patronize businesses on a regular basis.”

The foot traffic so vital for Edmonton’s downtown success relies on the essential ingredients of people who work, shop, live or visit downtown. As a place to work, downtown Edmonton is still reeling from several recent whammies. The two-plus pandemic years of work disruptions combined with already emerging technology and economy speedbumps are still taking their toll.

The bottom line is that Edmonton businesses don’t need as much space as they used to. As hybrid and remote work is still a key factor, it significantly impacts downtown vacancy rates. According to a report from CBRE, at the end of last year, the total downtown office vacancy rate was 23 per cent.

“It is higher than it should be,” admits Mark Anderson, vice president at CBRE Edmonton, and also vice chair of EDBA, “but there are bright spots. Some Class AA towers are outperforming the market and experienced positive absorption YTD. There is also positivity with recent investments in Edmonton downtown. These include major office building renovations, such as the 2022 Bell Tower renovation where Aspen Properties is investing $10M, as well as renovations underway at Rice Howard Place (formerly Scotia Place).”

Anderson continues, “There’s much more residential high rise downtown development. In addition to The Parks, there’s Station Lands, the Falcon Towers and an office building conversion to residential on Jasper Ave and 101 Street.”

He notes that the main source of Edmonton’s still high downtown vacancy can be traced back to the three recent towers (Enbridge Centre, Edmonton Tower, Stantec Tower) and he cautions that, “This year may be a challenging year for Edmonton’s office market. Companies are continuing to adapt to new workplace strategies of flexibility and work-from-home options. It may cause more underutilized office space, which will be shed and put back into the market.”

Anderson echoes the prevailing corporate wisdom, “If we can get away with less space, then it needs to be the best space. Features like top-tier building amenities, third-party retail offerings and just the general sense that there is activity and interest in a building are more important than ever.”

As with other segments of Edmonton real estate, downtown landlords and developers must respond, go with the flow and strategize about supply and demand factors.

“The biggest challenge is the absence of people in lower quality buildings or in properties located where there are fewer neighbourhood attractions,” says Cory Wosnack, principal and managing director with Avison Young in Edmonton. “The opportunity is for landlords to reinvent themselves. Tenants are choosing buildings that have been modernised and have amenities. Landlords need to amp up their customer service and make their buildings more attractive in order to compete better. Landlords that don’t reinvent their offering will be left behind.”

Undeniably, a key commercial factor for Edmonton’s downtown office space is provincial government offices. “As a capital city, there has been a big impact in buildings primarily occupied by government. By comparison, the suburban market is mostly occupied by private companies,” Wosnack points out.

The assessed value of commercial real estate is a significant influencer of downtown’s struggles and successes. According to Stephen Leroux, director of assessment operations for the City of Edmonton, “The onset of the pandemic initially caused a significant amount of uncertainty in the market. Leasing and sales activity slowed, as the time frame of restrictions was uncertain and rental rates were adversely impacted.

“Similarly, the rate of recovery of values has varied for the same reasons. For example, downtown values have been slower to rebound, likely as a result of diminished foot traffic and various hybrid working arrangements continuing to cause less activity in some office towers.”

Some specifics show the recent assessed value of some key downtown properties.

  • Edmonton Tower: $324.1 million
  • Stantec Tower Ice District (office/retail components): $319.8 million
  • Enbridge Centre: $286.8 million
  • Epcor Tower: $280.9 million
  • Canada Place: $172.5 million

 

In many North American cities, retail is a big attraction for a downtown core. In Edmonton, that too has become a challenge; the main challenger being West Edmonton Mall (WEM).

“There is a strong historical case for how WEM stole the attention from downtown retailers,” Anderson explains. As one recent example, it was a major reason why Holt Renfrew decided their downtown location was no longer feasible. Two of their biggest brands (Gucci and Louis Vuitton) opened stand-alone stores in WEM, so Holt was no longer viable.”

Re-imagining downtown retail is very much part of the EDBA focus. “It’s true that luxury retail used to be downtown’s primary retail,” McBryan notes. “Over the past 10 years or so, WEM really became Edmonton’s luxury retail destination. It is now more of an opportunity for us to figure out what kind of retail is needed to position our downtown for the future.”

Edmonton’s commercial real estate experts agree. Office space rates, vacancies and property assessments rely on various, hardcore business factors that will evolve and determine the market moving forward. Investment is triggering exciting residential and commercial growth. Re-jigging the retail draw of downtown is happening.

“We have to be able to deliver a great experience downtown and some of this is simply ‘low hanging fruit,’” McBryan says with enthusiasm. “That is why we’re still focusing for higher service level standards from the City for things like cleanliness and maintenance in our public areas, a more visible EPS foot patrol presence; and, we are also investing more than ever in our own litter cleanup program, holding multi-day festivals and events across downtown and giving out grants for other event and festival organizers.”

While factors like new investments, assessed values, vacancy, absorption and square footage rates are critically important, ultimately, it’s about more, much more, than just commercial real estate. She concludes, “It’s about a vibrant and attractive year-round downtown experience.”

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