Greater Edmonton Area

June 3, 2020 | Canada

As this unprecedented situation continues to rapidly evolve, Avison Young’s briefing notes are intended to provide an up-to-date assessment of the impact on the commercial real estate market.

Period covered: May 16th to 29th, 2020

General trends, news and market observations

  • Edmonton International Airport announced a 40% reduction of staff to take place over the summer despite previous spending buffers being put in place
  • The general sentiment among Edmonton landlords around the CECRA program is that there are still too many lingering questions about it
  • Funding on school repairs was sped up by the federal government to promote job growth over the summer; yet another indicator that infrastructure projects are still a high priority to stimulate economic growth
  • Edmonton City council agreed on the planned $9.6-billion budget for 2019-2022, which has a substantial focus on completing a wide variety of infrastructure projects

Office market observations

  • As return to office initiatives get underway, the importance of providing a healthy work environment for employees will be paramount, particularly because of the potential for COVID-19 to continue spreading for upwards of a year
  • Tour activity in some suburban markets, such as Sherwood Park, has increased incrementally, indicating a potential eagerness to see what types of product are on the market outside of the downtown core
  • Edmonton is in a unique bubble insofar as it doesn’t rely as heavily on public transit as other major cities, meaning more offices could open up sooner, thereby establishing Edmonton as one of the few Canadian cities in which return from COVID-19 protocols can be gleaned

Industrial market observations

  • The Winterburn, Mistatim and Southeast industrial areas will not likely see work done to the 20-km stretch of unpaved road anytime soon as surveys indicate landlords do not support an additional tax to fund the $240-million to $383-million project
  • Overall activity levels have increased as those who had interest pre-pandemic along with new interest are realizing that a lull in the market means they may be able to get some good deals
  • Many renewing tenants are not looking for year-long deals, but rather six-month ones to get them through the current situation but remain flexible afterwards

Retail market observations

  • Hudson’s Bay in downtown Edmonton is slated to close this fall, making Edmonton the first major Canadian city with no downtown department store
  • Oodle Noodle planning substantial expansion in Alberta and Western Canada primarily thanks to locations having strong ties to the local community and a stable supply chain, wherein pre-packed and portioned servings can easily be transported to various cities
  • The first few weeks of relaunching restaurants and bars has gone well with no major violations or fines being issued and patrons being respectful of the rules in most cases. The real indicator of success will be in the next couple weeks as the weather gets nicer and more patrons venture out
  • The Manchester Square retail development is slated for completion in two months and is still receiving interest. It will be occupied by local and/or independent retail groups
  • About 13 Nando’s locations will be closing in Edmonton over the next few weeks
  • Some restaurants have been reporting increased sales compared with the year prior, despite 50% capacity rules. Having dine-in and delivery options seems to be partially compensating for COVID-19 gathering restrictions
  • Enclosed malls continue to suffer as not all retailers within those malls are open and people are still not keen on being confined inside public places for prolonged periods
  • There will be a period of trial and error, seeing what works best to attract customers in a safe way
  • Smaller, independent hospitality groups are having a tougher time as they are unsure if it makes financial sense to bring back employees and reopen their restaurants, so many are waiting and watching to see how others fare first before acting
  • Some conversations are occurring and deals getting done with retailers looking to expand their warehouse requirements, be it for more general stocking purposes or specifically for e-commerce

Multi-Residential market observations

  • Federal government will start providing an additional $14.2 million a month in extra funding for operators of continuing care centres, assisted-living facilities and nursing homes in an attempt to bolster health and safety metrics
  • The Conference Board of Canada projects Edmonton and Calgary to have a positive number of housing starts in both the short and long term, which is not the case for most other major Canadian markets
  • “The Louvre” at Century Park, a mixed-use residential project with 358 units, was acquired by developer Bird Construction and is slated for 2022 completion
  • Stressed and/or value-add projects have the greatest chance of selling at this time as opposed to ‘coupon clippers’ such as the Level at Upper Windermere or Edmonton Tower as garnering investment interest from Eastern Canada is unlikely to happen right now
  • Until there is proven lease-up and stable rents, there remains too much uncertainty to sell larger-sized projects as opposed to pre-COVID-19 when having 50% to 75% preleasing may have sufficed
  • In the coming months, small- to mid-sized properties will likely be the market’s ‘bread and butter’
  • Some vendors may be looking to sell at reduced values given market uncertainty that is driving increased difficulty with rent collection and/or reductions in rental rates, leading to better deals to be had by purchasers
  • Demand for multi-residential zoned land has been substantial as development takes enough time that projects would be completed post-pandemic
  • Prior to two weeks ago, landlords had been getting their portfolios in order. Now, many have gotten past the initial pandemic-induced issues and are starting to evaluate the options available to them moving forward with many being bullish on Alberta’s multi-residential market
  • There are generally less vendors out in the market as most are waiting out the uncertainty to ensure they can get competitive prices for their assets; however, on the purchaser side, there are some major players on the sidelines waiting for opportunities to emerge and, if distressed assets present themselves, they are ready to act
  • With reduced demand for single-family residences, some home builders may switch to multi-residential developments specifically designed as rental properties
  • As more tenants become keen on remaining in their current homes, newer rental developments may have trouble attracting tenants as the tenant turnover rate drops
  • As in-fill development sites become more attractive, any new suburban development will likely remain less than 100 units as anything more would be too expensive and risky in terms of attracting enough tenants

Investment & Mortgage market observations

  • Lenders are not proceeding as frequently as they were pre-COVID-19 as many are struggling to ascertain an asset’s future revenue in order to help determine its true value
  • To get deals done in the near future, it is likely that more equity will have to be put forward and specific criteria will need to be met, such as having a strong covenant, consistent rent payments and more due diligence in general
  • Some clients have been trying to de-risk their portfolios by distancing themselves from industrial assets with energy sector-based tenants
  • General activity will likely come from selling value-add and riskier projects, instead of standard coupon clippers. There has also been a rising demand for in-fill sites

For more information please contact:

Spencer Schulze +1 780.429.7555

For more on the virus’ potential #CRE impacts, read the latest briefings on our Avison Young Resource Centre:

The spread of COVID-19 and the containment policies being introduced are changing rapidly. While information in the briefing notes is current as of the date written, the views expressed herein are subject to change and may not reflect the latest opinion of Avison Young. Like all of you, Avison Young relies on government and related sources for information on the COVID-19 outbreak. We have provided links to some of these sources, which provide regularly updated information on the COVID-19 outbreak. The content provided herein is not intended as investment, tax, financial or legal advice and should not be relied on as such.