2019: Edmonton Storm Clouds or Silver Linings?

We’re only in the first week of 2019 and we’re already prepared to make our first prediction of the year.

With the caveat that we have made some remarkably poor predictions in the past, we’re fairly certain we’ll get this one right: 2019 will be filled with a lot of negative headlines.

We’re basing this not just on the undeniable reality that our economy is struggling, but the fact we’ll see both a provincial and a federal election in 2019. More specifically, we fully expect political parties on both sides to strongly express their opinions on how the economy is performing.

Provincially, the United Conservative Party (UCP) and the Alberta Party will undoubtedly paint a picture that Alberta’s economy is under siege.  The spread between Western Canadian Select and West Texas Intermediate, known as the Heavy Crude Discount, will be talked about often. Alberta’s failure to get oil to tidewater will be spoken about even more regularly than we saw in 2018.  Politicians and the media will highlight the growing amount of protests and convoys to show how unhappy a number of Albertans are with the current state of the economy.

Federally, we suspect Andrew Sheer and the Conservatives will paint a picture of an economy on the brink of recession. Not only did 2018 end with a large drop on the stock market, we’re currently facing rising western (read: Alberta and Saskatchewan) alienation which threatens the very confederation Canada was founded on some 150 years ago.  Provinces on the giving end of equalization payments are growing increasingly frustrated with the lack of nation-wide reciprocity.  Even a number of elected officials, including the mayor of Whistler and the Premier of Quebec, are not concerned with the optics of opposing Alberta’s oil and gas industry.  Understandably, Albertans are frustrated.

In short, there is a growing anger within Alberta that stands to boil over in 2019. We expect politicians to exploit this unrest by highlighting how poorly the economy is performing, and presumably how they will be the economic saviours.

As a counter to this anticipated political rhetoric, we analyzed data going back to 2000 (remember Y2K?) to see if there was indeed a correlation between elections and economic performance.  Prior to Rachel Notley and the New Democratic Party taking leadership in 2015, Alberta was under Progressive Conservative leadership for over 40 years.  Going back to 2000, we had fedaral elections in 2000, 2004, 2006, 2008, 2011 and 2015.  The Liberal party retained power in 2000 but lost to Stephen Harper and the Conservative Party in 2004.  Harper retained power until 2015, at which point Justin Trudeau regained leadership on behalf of the Liberal Party.

With that information on the back burner, we charted the year-over-year change in both Edmonton’s average annual Gross Domestic Product (GDP) and the average annual price of West Texas Intermediate (WTI) in USD $.  While we anticipated there would be a strong correlation, the graph shows how the two moved in lock step.

Transitive law would suggest that if GDP is affected by oil prices, and the commercial real estate market is affected by GDP, then we can imply Edmonton’s commercial real estate market is impacted by the price of oil. In fact, this has been one of the main themes of our blog: Edmonton’s economy hinges predominantly on the underlying price of oil.  There is no other singular metric that influences our economy more so.

Getting back to the federal elections over the past 20 years, the light blue shading (2x) represents a liberal government and the light red shading represents a conservative government.  While there is an irrefutable connection between Edmonton’s GDP and WTI prices, there does not appear to be any consistent or reliable correlation between the GDP and the results of the federal election.

Back in 1999 there was a huge concern from a number of “experts” who feared Y2K would cripple the digital world.  That never came to fruition, and the economy has chugged along fine since.  At the time, there were a lot of negative headlines, and for different reasons, we expect that to be a theme in 2019.  We simply caution that headlines only tell a fraction of the story.

With a sense of political agnosticism, we do believe in and fully support Alberta’s oil & gas industry.  While we are unclear about the future as anyone, we are proud to call ourselves Edmontonians, Albertans and Canadians.

We’ll follow a number of trends relating to the economy and Edmonton’s commercial real estate market throughout the year.  We’re passionate about the topic and we’re honoured to have you along for the journey with us.

Best wishes for 2019!

 

 

Sources:

WTI prices based on the average price for the calendar year.  We used the current front-month future price of WTI for 2019.

GDP prices sourced from Conference Board of Canada.  2019 is the average of the four-quarter estimate for the upcoming year.

 

Our Team

Chad Griffiths

Chad Griffiths

Partner, SIOR, CCIM

Chad is a partner with NAI Commercial Real Estate and focuses on the Greater Edmonton area. Chad entered the industry in 2004 and has completed over 400 commercial transactions with clients ranging from small, local companies to large institutional owners. Chad has been a top 15 producer with NAI Canada-wide since 2013.

Ryan Brown

Ryan Brown

Partner, BCom, SIOR

Ryan is a partner with NAI Commercial Real Estate in Edmonton and is currently ranked nationally as one of NAI's top advisors. Having executed in excess of $100 Million worth of sales transactions and over 2 Million square feet of lease transactions, Ryan has developed a firm understanding of asset evaluation and an aptitude for building design, functionality, and long-term practicality.

Darcie Bouteiller

Darcie Bouteiller

Associate

Darcie is a licensed Commercial Real Estate Agent in the Province of Alberta with a focus on the Edmonton market and its surrounding areas. Darcie accomplishes custom solutions for her clients through her personable nature and results driven attitude. Darcie can help if you are looking to invest in commercial real estate or are looking for representation for a sale or lease transactions.

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