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Investment in Edmonton’s commercial real estate market this year posted one of its “strongest” first quarters, according to a new report.

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The industrial sector is said to be leading the way as out-of-province investors are looking toward the region for its affordability and young labour force.

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The study by ReMax examined the first quarter of 2023, which highlighted that the market’s demand is continuing to ramp up.

In September 2022, Edmonton was named the location of Western Canada’s new $1.6 billion hydrogen facility. New businesses are flocking to the region with Delta, B.C.’s English Bay Blending and Fine Chocolates announcing plans to relocate and expand to Stony Plain, just west of the city. The company will invest approximately $30 million into the facility and create 70 jobs.

In city suburbs, retail is progressing at a strong rate given the population growth and higher disposable incomes within the area. Sale volumes more than doubled year-over-year, approaching $107 million, up $50 million from the first quarter of 2022.

Investors are increasingly interested in strip plazas and shopping centres, with plans to optimize space happening across the city, according to the report. The average price per square foot now ranges between $28 and $38 per square foot.

Scott Hughes, an Edmonton-based broker and owner of ReMax Commercial Capital, says that the increased interest in the Edmonton region is an indicator that the financial constraints of the COVID-19 pandemic are loosening, which means the promising upswing currently happening will last for a longer period of time.

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“We’ve had really good momentum in the Edmonton investment market,” said Hughes. 

“That, for the most part, was led by a very strong industrial sector.” 

Land development has grown significantly over the past year, with 54 sales in Edmonton in the first quarter, up 26 per cent.

However, industrial products have become elusive in the region and construction is more expensive due to inflation and higher interest, factors Hughes says they are seeing across the country. 

According to Hughes, Edmonton’s strong first quarter was likely due to the Bank of Canada halting interest rate increases, which provided investors, buyers and sellers with some stability to put their money in other avenues. 

‘Dealing with an inflationary market’

But with the positive upturn, Hughes is cautious, given rising interest costs over the last year.

“We’re still dealing with an inflationary market,” said Hughes. “Global inflation and prices are still high.”

“We have interest rates that are higher than they’ve been for several years, which is an ongoing concern like any market.”

That hasn’t deterred him from seeing how beneficial the boom in the industrial sector will be for the future of the region.

The city’s downtown office market is currently transitioning to a new hybrid reality post-pandemic, which is consistent with others across the country. But now, Hughes says they’re looking at how they can reimagine spaces by looking into how tenants and landlords can change those properties.

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Growing interest in the downtown core

Edmonton’s downtown core, like those across the country, has entered a new hybrid work era.

In the office sector, availability rates have edged to 20.4 per cent, according to the report. However, building vacancy rates remain high even with traffic to areas that draw in visitors such as Ice District. But with the many vacancies, investors have been eyeing the buildings as potential opportunities for conversion, according to the report. 

Pressure on average lease rates has caused them to rise 3.5 per cent year-over-year in areas such as Parkland County and Acheson.

Puneeta McBryan, the executive director of Edmonton Downtown Business Association, says the report didn’t surprise her, in fact she was glad to see something that reinforced the growing trends her organization has been discussing over the last few years.

“I think a lot of that is driven by how affordable Edmonton still is in terms of real estate when you compare us to pretty much every other major city across the country,” said McBryan. 

“Affordability is a real edge and I think that has been playing out in industrial and suburban land already for a while.” 

However, she says that the interest doesn’t come without a cost and they need to maintain the affordability edge if they plan to retain the current market’s momentum.

McBryan says the city still has a lot of underdeveloped land which is “unheard of” for a major city. In the next five to 10 years, she says, it will be fertile ground for future developers.

The growing investment in commercial real estate will “absolutely” lead to a domino effect, which McBryan says will bring even more young professionals and newcomers as new opportunities arise.

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