It’s not breaking news to hear Edmonton’s commercial real estate market has seasonal fluctuations. The market tends to be slower in January and February (due primarily to the weather) and also slower in July and August (when many people take holidays). March to June and September to December tend to be the active times of the year.
We anticipated that trend would occur this year as well. We had a terrible cold snap to start the year, followed by a provincial campaign that was expected to – and indeed did – lead to a change in government. And since oil prices have increased and stabilized, we expected an increase in activity.
Unfortunately, that pick up hasn’t come to fruition. Using data from the Network, there have been an average of 48 sales per month going back to 2010. In April, however, there were only 31 sales, making it the 5th slowest month in the past 10 years.
This slow down seems even worse when observing that the four slower months in the past decade were all winter months.
So what caused this?
Conceivably there could be a nearly infinite amount of market forces at play, but we would point to the following as the key drivers:
1. Failure of the federal government to get the Trans Mountain Pipeline going. When the Federal Court of Appeal overturned the approval last August, we noticed an immediate change in investor and business sentiment. We keep getting glimmers of hope that it will eventually proceed, but we would not anticipate a huge lift until it’s official.
2. The City of Edmonton’s failure to get spending – and property taxes by direct association – under control. The City of Edmonton is still spending with revenue they received when real estate prices were at peak value, and there has been very little action taken to bring costs under control. Unlike businesses and households that adapted to the changing reality, there has been virtually no fiscal accountability shown by council. Generally speaking, a company will pay federal and provincial taxes based on net income (ie/ profit), so a company with no profit would conceivably pay no corporate taxes. The City of Edmonton, however, collects property tax irrespective of a company’s financial standing. This puts a tremendous burden on companies that are already struggling. City Council needs to be more pro-active and stop ignoring this problem.
3. The Provincial government imposed a lot of additional costs on businesses (including minimum wage hikes and a carbon tax). The UCP appears to be taking a more business-friendly approach, so time will tell if this eases the burden on businesses.
If it seems like we are blaming the government for the woes in the business community and the real estate industry, that’s because that’s exactly where we’re pointing the fingers. All three levels of government have either taken action to hurt business, or not taken enough action to help.
Notwithstanding government ineptitude, an argument could be made that suppressed oil prices continue to put a lag on the economy. We would dispel this notion by simply pointing to the fact that Texas’ economy (which would be the American economic equivalent to Alberta) is booming.
What’s the difference between Alberta and Texas?
Texas currently has 5 major pipeline developments / expansions underway, and a state and federal government that supports the energy industry.
Until all levels of Canadian government wake up to this disparity and adopt business and energy-friendly policies, we expect there to be continued pressure on the local market.
Alberta was once a cash-cow, but lately it’s been relegated to an under-appreciated and neglected afterthought.
Let’s hope there is meaningful change in that attitude soon.
Chad GriffithsPartner, 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 BrownPartner, 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 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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