Home Month and Year April 2024 Edmonton’s Transitioning Commercial Market

Edmonton’s Transitioning Commercial Market

Dealing with the speedbumps

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Edmonton, Canada – August 01, 2021: Edmonton, Alberta - July 30, 2021: Elevated view of Edmonton's downtown office buildings.

While Edmonton’s commercial real estate market continues to transform itself and trigger renewed momentum, it is also dealing with lingering challenges and unavoidable speedbumps. Factors include economy and interest rates; work-from-home (WFH) and other post-pandemic workplace trends; the changing wants, needs and expectation of commercial tenants and their employees and the sad but negative Edmonton downtown image and perception of homelessness and on-the-street social and safety issues. 

Although actual Edmonton commercial real estate stats and trends are fluid and changeable, there are 283 office buildings in Edmonton, accounting for a fluctuating total of more than 25 million square feet. The city’s 2023 downtown vacancy rate dropped slightly from 13.7 per cent to 12.4 per cent by the end of the year. 

“While some other reports show significantly higher vacancy rates, those figures are not based on complete data as they do not account for all downtown office properties,” explains Chad Snow, president and broker at Edmonton’s NAI Commercial Real Estate. “Many of the data sets are based only on buildings that historically lease, while omitting owner-occupied buildings.  

“Regardless of how surveys are compiled, all vacancy numbers quoted do not speak to what the industry calls ‘shadow vacancy,’ which is space that is collecting rent but is simply not being used. This shadow vacancy is related to the new work-from-home standards and reluctancy, for various reasons, to return to a full work week in the downtown core.” 

Edmonton’s commercial real estate number crunchers agree that post-COVID workplace transitions, WFH and the gradual back-to-the-office normals continue to impact leasable space, absorption and rates in Edmonton’s commercial real estate market. 

“While there’s no question that workplace needs and behaviours have evolved, there is strong evidence that many employees are returning to the office,” notes Cory Wosnack, principal and managing director at Edmonton’s Avison Young. “There’s positivity and Edmonton’s office market closed 2023 with a total absorption of over 234,000 square feet, marking the most positive absorption since 2018.”  

Positive absorption means more space was leased than was vacated. 

According to stats, transactions and activity surged for properties in or near the ICE District, highlighting a shift in the area’s real estate dynamics. A key example is Henry Singer’s relocation to Stantec Tower’s main floor. 

“It is a testament to retailers’ confidence in the region, further enhancing the district’s appeal,” Wosnack says. 

Conversion from commercial to residential space is a hot trend in many major markets throughout North America. Edmonton is no exception. For building owners and developers, it is an opportunity to convert an underperforming asset into a performing asset. 

“There are pros and cons about conversions,” Snow explains. “While there are obstacles around building codes and practical concerns in converting buildings designed for a commercial into residential, it will happen where it’s viable. However, conversions are costly and not all buildings convert well. The process is also time consuming.” 

Edmonton just completely overhauled zoning bylaws as of January 1st, which seems to be solving many problems that existed under the former zoning system. The city has lingering building code issues and residential standards when it comes to downtown conversions, but it is happening. 

Examples include conversions like Peak Tower, which already had the potential for hotel elements built into the design. Newly built residentials like Qualico’s tower in the Stations Lands are also creating downtown activity. 

However, real estate professionals and Edmonton community leaders acknowledge a sad but real factor which is not so easy to manage. The urgent, tragic social reality, the facts and causes and the public safety risk and perception surrounding Edmonton’s homeless situation.  

“In a city as prosperous as Edmonton, in a province as wealthy as Alberta, no one should think it’s acceptable to have people living in squalid tent encampments,” says Doug Griffiths, president and CEO of the Edmonton Chamber of Commerce. 

“We do have makeshift encampments in our city. They are more than just eyesores. Officials with the Edmonton Police Service (EPS) say they pose a public safety hazard with serious risk of injury or death to those who live there and to anyone in the downtown core. One EPS official told me there are as many as 800 encampments (each with eight or more tents/structures) scattered across Edmonton. The encampments are a stark reminder of the growing homelessness problem and how our various levels of government have not been up to the challenge.” 

Griffiths emphasizes that earlier this year, the Alberta government announced it would pay for 150 new emergency shelter spaces in northeast Edmonton, increasing the number of shelter spots in the city to almost 1,500 spaces. 

“It’s a positive step, but solving the homeless problem, or at least mitigating it, will be a marathon.” 

The Edmonton Chamber’s 1,900 members consider it a call to action. 

Perhaps it is unintentionally crass and mercenary, because homelessness is an undisputably urgent community and social issue, but the situation does significantly impact commercial real estate. It invariably weighs on people who commute via transit or park and walk to work or shop from outside parkades. 

“It’s a very real and urgent,” warns Scott Hughes, broker and owner of Edmonton’s RE/MAX Commercial Capital. “Downtown’s homelessness and addiction is a safety issue, particularly the way it is perceived by residents, commuters and visitors. When it comes to the impact on commercial real estate, it makes landlords and tenants uneasy. Many businesses have had to add security and safety expenses for employees and visitors. The downtown tenants aren’t social workers and are not used to dealing with street people. The safety of employees and visitors is a real problem which must be resolved.” 

Snow is optimistic that with steps taken over the last year or so and as more people return to the downtown area, the perception of a safe downtown will improve. 

“Many building operators have improved security, with some even providing security escorts to parking facilities. I think everyone from building owners to downtown businesses and the city are working to improve the situation.” 

By all indications, Edmonton’s commercial real estate market challenges – from WFH and new-normal workplace trends, vacancy rates and lingering on-the-street safety issues – are being dealt with. There is cautious optimism about a rebound or maybe even a transformation. 

“Edmonton’s commercial real estate market is showing more activity in the first quarter of the year than at any point in 2023,” Wosnack points out. “The stability in the financial markets together with decreased inflation are encouraging real estate players to come off the sidelines. Occupiers are more confident in making long term decisions.” 

Now that the cost of debt and construction is more predictable than it has been in the past two years, developers are positioning themselves to meet the demand of Edmonton’s record setting population growth. 

As Edmonton’s commercial real estate manages the various speedbumps, Snow shares optimism about the encouraging momentum.  

“Money is smart and more of it is coming to Edmonton. The city is positioned to remain one of the best markets for growth and employment in Canada in 2024.” 

PHOTOS: 

Chad Snow, president and broker at Edmonton’s NAI Commercial Real Estate 

Cory Wosnack: headshot  Cory Wosnack, principal and managing director at Edmonton’s Avison Young 

Scott: Scott Hughes, broker and owner of Edmonton’s RE/MAX Commercial Capital 

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