Edmonton’s downtown office vacancy rate nearly doubled in the past year, and a balanced market might not re-emerge for decades, speakers told a real estate conference Thursday.
Spurred by the opening of such major buildings as the Enbridge Centre and the Edmonton Tower, downtown vacancies soared to 15.3 per cent in the first quarter of 2017 from 8.7 per cent in the same period last year, according to figures from Avison Young.
The overall figure for the city was 15.1 per cent, the highest since the late 1990s.
“A healthy balanced market is seven to eight per cent vacancy. At 15 per cent, yes, landlords should be worried,” Phil Goh, senior vice-president at Colliers International, told the Edmonton Real Estate Forum at the Shaw Conference Centre.
He predicted vacancies could reach 18 per cent to 20 per cent next year as companies move into the 66-storey Stantec Tower, scheduled to be completed in October 2018, and other new locations.
“Things are going to get worse. If you look at historic (space) absorption rates … right now we have a 13-year supply.”
Chris Nasim, vice-president of asset management for GWL Realty Advisors, expects vacancies to peak next year and only start to improve in 2019 despite predictions that Alberta’s economic growth will lead the country in 2017 after contracting for two years.
Based on the city’s past experience, he’s concerned there could be excess space well into the future.
“When does it get back down to a balanced market? Ten, 15, 20 years? Who knows?”
Although transforming older towers into apartments, condos or hotels has long been discussed as one way to reduce the office over-supply, the first conversion plan in recent years was only announced this week.
Phil Milroy, chief executive of Westcorp, said he has looked at revamping 25 to 30 office buildings in Edmonton and Calgary over the years and only completed two projects where he found residential redevelopment was worthwhile.
“When you open up these old buildings, you get lots of surprises … (Also), it has to match the neighbourhood, it has to match the surroundings, and also it has to have the proper amount of parking. It’s harder than you think, but there are opportunities.”
He doesn’t see much light in the near future, saying the Edmonton office market is being hit by increased supply that even a strong economy couldn’t entirely absorb.
Rents recently recovered to where they were 30 years ago, he said.
“The fundamentals are rotten, that’s the only word you can use, and they’re going to get worse,” Milroy said, adding one option is probably tearing some buildings down.
“Edmonton is not Calgary. They can bounce back really, really quickly.”
Calgary’s downtown office vacancy rate in the first quarter of the year was 23.9 per cent compared to 21.1 per cent in 2016.
One positive factor Milroy sees is that more people are interested in living in downtown Edmonton, a trend he expects will grow over the next few years as suburbanites look at homes in the city centre, which could cause businesses to follow them.
“Employers will start to realize it’s worth paying a premium to be downtown. That I think will (help) solve it, but I don’t think it’s a 2018 term. It takes a lot longer than that.”
Mayor Don Iveson said the city wants to boost the downtown population and assist companies trying to convert offices to housing.
“It adds to the vibrancy of the city, and if it puts the building to the highest and best use, we’re willing to work with people to expedite that process.”