Amazon Will Save Millions of Dollars by Locating Outside of Edmonton City Limits

Amazon made waves this week when they announced plans for a new 1 million square foot facility in Nisku.   They will join other large companies in the area, including Aurora Cannabis in an 800,000 square foot building and Ford Motors in their new 400,000 square foot distribution facility (which was relocated from west Edmonton).

In the region, this adds to a new 400,000 square foot building for Champion Pet Foods in the Acheson industrial park and AGLC adding another 470,000 square feet to the already significant amount of real estate they occupy in St. Albert.

These companies / organizations undoubtedly had a variety of strategic reasons for why they chose to build outside of Edmonton, but we have little doubt that property taxes factored into these decisions.

To illustrate why we think taxes played a big part, we sourced the estimated values for each of these projects and applied the corresponding municipal tax rate to get an estimate of what the yearly property taxes will be.  We then calculated what the same tax bill would be if the same value were to be assessed under the Edmonton tax rate.  The values would be conceivably higher if the properties were located within City limits (if for no other reason than the land costs would be higher), so the potential savings these companies would see by locating outside of Edmonton could be even greater.

CompanySize (sq ft)Estimated ValueEst. TaxesEdmonton EquivalentEst. Savings / yr
Amazon1,000,000$113,000,000$1,206,840$2,397,713($1,190,873)
Aurora Cannabis800,000$150,000,000$1,602,000$3,182,805($1,580,805)
Ford Distribution400,000$45,000,000$480,600$954,842($474,242)
Champion Pet Foods400,000$200,000,000$2,353,920$4,243,740($1,889,820)
AGLC470,000$153,000,000$2,218,515$3,246,461($1,027,946)

We’ll emphasize: these estimated savings for locating outside of Edmonton are per year.

Mayor Iveson said the new Amazon facility is welcomed news for the region.  And while Amazon (and the others) represent a success story for the Edmonton region, they all represent a huge collective loss for the City of Edmonton.  That’s because there’s a very low marginal increase in municipal expenses for a municipality when a new business enters the market.  After all, Leduc County already has all the municipal infrastructure, employees and systems in place so any expenses required to cater specifically to Amazon will be minimal.  We’re not privy to any tax arrangements that may have been made between Amazon and the County, but whatever amount ends up being paid is newly found revenue.

Again, these companies / organizations undoubtedly had reasons beyond taxes for choosing to locate in surrounding municipalities, but the numbers are quite alarming.  If these five groups alone had chosen to locate in Edmonton it would have added an extra $14 million in tax revenue each and every year.  Instead, roughly 1/2 that amount will be paid to Leduc County, Acheson and St. Albert.

Now to be fair, Edmonton has had a number of successes lately.  Stantec Tower is redefining the skyline and the Arena District is transforming the north side of downtown.   Notwithstanding the companies and developers looking to take advantage of the downtown infrastructure and amenities, the concern is with all the logistics and manufacturing companies who are keenly aware there’s little difference between an industrial park in Edmonton and an industrial park in a surrounding municipality a few minutes in either direction.

So herein lies the problem.  By continuously raising taxes, the City of Edmonton becomes increasingly less competitive with surrounding areas.  As companies are cautiously watching every dollar they spend, will we see more and more businesses look to move outside of Edmonton?  And if so, will this create a vicious cycle where the City has to overtax the businesses that stay, thus further exacerbating the problem they’ve created?

This is all despite an advocacy group explaining how dire the tax situation has become.  As highlighted in their report, City operating spending has increased over 100% in the past 10 years, even though inflation and population growth increased only 50%.  City Council ignored these concerns altogether last week when they passed a 4 year budget which will see 2.6% added every year for the next 4 years.  That also doesn’t include any supplementary budget adjustments that will undoubtedly be presented at various opportunities over the next 4 years.

With other municipalities actively looking to recruit large companies and developments (complete with the capital investment and long term jobs that come with it), the City of Edmonton is raising taxes.  And instead of cutting spending or focusing on attracting new industrial developments, they have directed their attention to making it easier for small home based businesses to operate.   This is all based on a study that showed minor home based business licenses have increased roughly 50% since 2012 and nearly all applications are approved.   In order to remove roadblocks for home based businesses getting a license, the City recently voted to amend the zoning bylaw so that development permits are no longer required.

To recap: Leduc County attracted Amazon to a new 1 million square foot facility while Edmonton City Council voted to increase taxes more than 10% over the next four years and to remove a bit of paperwork for minor home base businesses.

With City Council failing to recognize how bad their tax and spend problem has become, we suspect the Mayor will continue having to spin good news for the region as being good news for Edmonton.

 

 

 

 

Notes:

Analysis based on the following 2018 non-residential tax rates:

Leduc County0.01068
Parkland County0.0117696
St. Albert0.0145001
Edmonton0.0212187

Minor Home Based Businesses:

Only employees that live in the residence, one visitor / customer per day.  Essentially the business should be undetectable from neighbours. Includes businesses where you may be working in different areas throughout the city but administrative activities are done in the home. Some examples of home-based businesses include online retail, contracting, cleaning services, photography, landscaping and catering.

The changes will exempt Minor Home Based Businesses from requiring a development permit, provided that they are listed as a permitted use in the zone they are located, and they fully comply with the special land use provisions.   The removal of the development permit should enable a faster processing time for businesses.

As Minor Home Based Businesses will still be required to obtain a business licence, Administration can verify compliance with Zoning Bylaw 12800 during the business licence application process. If it is found that the proposed Home Based Business does not comply with the Special Land Use regulations, the applicant will be directed to apply for the appropriate development permit as required.

 

 

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.

Recent Posts

2019 Industrial Land Sales Data for Greater Edmonton
Articles

2019 Industrial Land Sales Data for Greater Edmonton

It's data day here at EdmontonCommercial.com, and today we're focusing on industrial land sales in 2019. Year-to-date, 15 Industrial land...
Read More
Significant Events that Shaped Edmonton’s Commercial Real Estate Market
Articles

Significant Events that Shaped Edmonton’s Commercial Real Estate Market

Last week we wrote an article on how much Edmonton's retail market has changed (yet stayed the same) over the...
Read More
What’s Changed in the Commercial Real Estate Market in the Past 100 Years?
Articles Industrial

What’s Changed in the Commercial Real Estate Market in the Past 100 Years?

It wasn't too long ago that one of the world's largest retailers announced free shipping on any order over $25,...
Read More

About Us

EdmontonCommercial.com offers expert analysis and research in a weekly blog along with resources for landlords, tenants, sellers and buyers in the market. Seeking to buy or lease? We track every property available for sale and for lease in Greater Edmonton. Get the latest news and check the latest listings—anytime.

Leave a Reply

Your email address will not be published. Required fields are marked *