Rampant office vacancy and astonishing low office sale prices have dominated headlines these past three years. As an example, the Milner Building on 10030 – 104 Street (177,645 square feet) sold last year for $7,500,000. It was also purchased six years earlier for $40,170,000 (an 81% price drop).
As we wrote about previously, that particular building, along with three others sold at the same time, were anomalies in the market and we do not believe they reflect the current state of market. The market isn’t that bad, but it also isn’t nearly as good as it was prior to the drop in oil prices.
A recent report suggest office vacancy in Edmonton is hovering around 17%. While the vacancy rate is improving, a 17% vacancy rate naturally indicates there is a lot of space sitting empty. Furthermore, it does not yet factor in new product about to be developed. Enter in the Alberta Teachers’ Association (ATA).
The ATA has been planning an expansion to their building at 11010-142 Street (known as Barnett House) for the past couple of years. In mid March, their construction manager, PCL, obtained a building permit to construct an 8 storey addition to the current 8 storey building. As with every building permit obtained from the City of Edmonton, a estimated value is assigned with the permit, and in this case PCL estimated the construction value to be $11,152,200 (which to be fair also includes a renovation to the existing building). We don’t have details on how large the new building will be, but the current 8 storey building is 110,000 square feet. Unless the footprint is different, we would expect it to be roughly the same size.
We would like to have been the proverbial fly on the wall when they decided to go forward with constructing a new building. Our economy is in the midst of the worst provincial recession in decades and it reflects in the vacancy rate. In addition, a handful of office buildings sold the prior year for dramatically low prices. Had they looked at the Milner Building when it was available for sale, they could have purchased a larger building than they are planning to build for less money.
We were not privy nor involved in any capacity with either ATA’s decision to build nor the Milner Building owner’s decision to sell, so this is not meant as a criticism of either decision. We recognize that the ATA’s current building offers a number of benefits, such as ample parking and ease of access. There’s also something to be said about already being established and operational in the building. It probably feels like home to the people that work there. The seller of the Milner Building also had reasons to sell at the price it did, and again, we do not believe that price set a precedent for future sales.
A look at the west Edmonton office market also reveals a lower vacancy rate then Edmonton at a whole.
There’s no doubt in our minds that the economy is improving, so we suspect the ATA took that and other factors into account when making their decision. It will indeed be an interesting year in Edmonton’s office market.
The survey includes all office properties west of 123 Street, south east of Anthony Henday and north of the river. We included the properties in Westmount (124 street corridor).
Costar, City of Edmonton, Alberta Teachers’ Association
Information was obtained from sources deemed reliable but not warranted to be so. Information contained herein the sole opinion of the authors and does not reflect the views or opinions of any company or organization. View full disclaimer here.