Ups and Downs: Q1 Commercial Real Estate Update

We’ve already covered some interesting territory this year. We went on a two-week bender about real estate investment analysis, only to cap it off (terrible pun) with a rant on the City of Edmonton’s draconian zoning bylaws. This week we’re getting back to the basics and providing a commentary on the market as a whole. Our office just released a Q1 Report on Edmonton’s Commercial Real Estate Market, and this is some additional commentary to that report.   And fret not if you prefer our random and often nonsensical blog posts, we’ll get back to those in no time.

Following a challenging year for the economy, there are reasons to be optimistic for 2019.   Leading the charge is Western Canadian Select (WCS) prices, which bottomed out near $12.00 / barrel in Q4 of 2018, but has since recovered to over $40 / barrel.   The situation was becoming dire in the second half of 2018 as the spread between WCS and West Texas Intermediate (known as the Heavy Crude Discount) was at an all-time high. To combat this problem, Notley imposed mandatory production cuts. This week, she also announced the government will be leasing 4,400 rail cars from CN and CP in order to get product to the US and international markets. Notley cannot control the price of oil, but we give her credit for coming up with solutions to the problem.

We’re also encouraged by recent news from both the government and private industry surrounding major projects.  This includes Pembina and PIC announcing plans to build a $4.5B petrochemical facility north of Edmonton, coupled with the provincial government announcing funding towards twinning Highway 60 in Acheson in addition to a new overpass between the airport and Leduc.

These announcements in the surrounding municipalities, coupled with lower land prices and tax rates should prompt these areas to outpace Edmonton’s industrial development, but it’s ultimately good news for the region as a whole. Edmonton Global (not to be confused with Global Edmonton, which it will be anyways) was set up in 2017 to be a regional economic development company. The group is comprised of 15 municipalities in the region, with the board led by John Day and a number of prominent business leaders. The group is still in the early stages, but it will be interesting to see what they can accomplish once it gets rolling.

On the political front, 2019 promises to be an interesting year with both a provincial and a federal election.  Recent polls show the UCP with a lead in Alberta, and while the Liberals at one point appeared poised to win a second term in the fall election, Justin Trudeau’s personal approval ratings are declining and the party is mired in a scandal.  While Albertans are all too familiar with polls inaccurately predicting the outcomes, it does look like some change is in the air.

Although we see positive signs, there are also reasons to be cautious.   Of paramount concern, the Transmountain pipeline is still stalled and our ability to get product to other markets is being throttled as a result.  The recent increase in Canadian oil prices is welcomed news, but with prices being propped up by mandatory production cuts, many oil producers are left wondering if the gains are temporary.  Prices are still dramatically lower than they were in 2014, so companies are being forced to adapt to this new reality.  Adding more pressure, the prime rate has increased 125 basis points since the summer of 2017 to currently sit at 3.95%.  However, even though the rate is higher than it’s been over the past decade, it’s important to note that it’s still lower than it was prior to the start of the Great Depression in 2008.

So while Alberta fights to exit the worst provincial recession in decades, at the very least we should be grateful we’re not burdened with the 20% interest rates experienced in the 1980’s.  The economy appears to be improving, but there’s still work to do.

 

 

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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