We’ve written extensively about how Edmonton’s commercial real estate market is directly linked to the price of oil. This week, we’re going to be even more specific and show how Edmonton’s industrial real estate market is hinged to the price of Canadian oil prices (Western Canadian Select).
First a bit of background: oil prices, when quoted in the media, generally refer to either West Texas Intermediate or Brent Crude, and are quoted in US$ / barrel. Also, since oil is traded as a commodity, prices are often quoted for the next month’s contract price (typically called a front month contract price). So if you were to look at oil prices today, you would see prices of $69 & $79. This would mean the November 2018 contract price for West Texas Intermediate (WTI) would be $69 / barrel $USD and the November 2018 contract price for Brent Crude would be $79 / barrel $USD.
As we wrote about a few weeks ago, WTI and Brent prices have increased considerably in the past year, which should translate into an improved Alberta economy. The issue, however, is that most oil in Alberta is a heavier grade of crude, and accordingly more expensive to extract, ship and refine. This results in a discount between what WTI / Brent sells for and what Alberta’s oil sells for. Known within the industry as the Heavy Crude Discount, this spread between WTI / Crude and Western Canadian Select is now at an all time high. In short, this spread has been widening due to the lack of pipelines available to transport crude from Alberta to other markets. Oil prices – at least those portrayed in the media – have increased considerably this year. Canadian oil prices, conversely are down 10% in the past year.
It’s perhaps not surprising to compare how Edmonton’s industrial real estate market has performed alongside Western Canadian Select prices over the past year. We did a detailed analysis on Edmonton proper and we also looked at the major sub markets in the region. There’s a clear trend that the decline in Western Canadian Select has translated into downward pressure on rental rates and upward pressure on vacancy rates.
EDMONTON INDUSTRIAL REAL ESTATE MARKET
LEDUC / NISKU INDUSTRIAL REAL ESTATE MARKET
ACHESON / PARKLAND COUNTY INDUSTRIAL REAL ESTATE MARKET
SHERWOOD PARK / STRATHCONA COUNTY INDUSTRIAL REAL ESTATE MARKET
In order for our market to improve, we strongly believe there needs to be some movement on pipelines. Whether it’s the Trans Mountain pipeline getting expedited, or industry support for alternatives such as Calvin Helin’s Eagle Spirit Pipeline, Alberta needs an efficient system to get our product to market. Until then, we can expect further political rhetoric combined with continued pressure on our economy.
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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