Edmonton’s commercial real estate market is undeniably tied to the price of oil. We illustrated this in September when we compared the price of oil over the past few years to the stock price of Melcor, which is a publicly-traded real estate developer with heavy exposure to Alberta. You’ll see Melcor’s stock price was rising steadily until oil prices starting falling. At that inflection point, Melcor’s stock price has move in nearly lock step with oil prices.
As we near the end of 2017, we’re looking for signals for oil prices in 2018 as an indicator on how the commercial real estate market will perform. A few weeks ago we made a prediction (read: guess) that oil prices will rise above $70 in 2018, but even ignoring the price of oil for a moment, there are reasons to be optimistic for next year.
Most noteworthy, the Keystone Pipeline just cleared an important regulatory hurdle as Nebraska’s Public Service Commission voted to approve a route through the state. There are still issues and uncertainty on whether it will still go forward, but it’s a lot closer to happening than anytime in the past decade.
Outside of pipelines, research consultants Spears & Associates are anticipating that drilling in Canada will be at the highest levels since 2014. Drilling activity provides an economic stimulant as it leads to new jobs, growth in other industries and naturally an increase in demand for commercial real estate.
We also attended the Sequeira Partners Energy Services Symposium last week and were particularly intrigued about the number of mergers, acquisitions and consolidations happening in the industry. Following are some of the larger examples:
- Gibson Energy sold Canwest Propane to Superior Propane for $412 million;
- Trican purchased Canyon Services Group for $637 million;
- Rockwater Energy Solutions Inc. and Crescent Cos merged in a $207 million transaction;
- Select Energy then merges with Rockwater for $470 million;
- Nabors Industries acquied Tesco Corp for $216 million;
While there were a number of other mergers and acquisitions, these 5 transactions alone accounted for nearly $2 billion worth of activity.
On the back of all this positive news, oil prices are currently at a 2 year high. While there is always the possibility of a pullback, we are optimistic prices will continue to rise into 2018, and Edmonton’s commercial real estate market will be a main benefactor.