Edmonton Commercial Real Estate Expected to Flourish as Population Surges

2024 Edmonton Commercial Real Estate Trends

Unprecedented immigration and interprovincial migration into the province have contributed to a strong economic performance over the past year, underpinning vigorous commercial expansion in both the multi-family and industrial asset classes throughout Edmonton and the surrounding areas, according to the RE/MAX 2024 Commercial Real Estate Report.

Demand for rental housing is front and centre given the city’s current supply crunch. Multi-family apartment construction is gaining ground after a soft 2023, when apartment starts declined significantly as developers grappled with increased costs, labour shortages and supply chain issues. Housing starts in Alberta hit a new record in April 2024 at 1,636 units, with Edmonton up 64 per cent compared to year-ago levels for the same period. Preferred rates, higher loan-to-value ratios and extended amortization periods offered by the Canada Mortgage and Housing Corporation’s (CMHC) Apartment Construction Loan Program are behind the push for purpose-built rentals that may not have otherwise moved forward. Vacancy rates dropped to 2.4 per cent in October of 2023 (4.3 per cent in 2022), despite close to 3,000 rental units coming on stream in the Edmonton CMA last year, with most located in the downtown core, West, and Mill Woods, according to the CMHC’s Rental Market Report.

CMHC’s mortgage loan insurance for multi-unit student housing has also attracted capital investment from outside the province, with several large student housing projects underway near the University of Alberta, MacEwan University, Concordia University and NorQuest College.

Construction in Edmonton’s industrial sector continues unabated with new developments going up in peripheral areas such as Acheson, Parkland, Leduc/Nisku, and St. Albert where tax obligations are significantly lower. Vacancy rates remain low –hovering at 2.5 to three per cent—and new product is absorbed quickly. The city continues to attract national tenants in large part due to higher cap rates. The most sought-after buildings at present are those that offer storefront showrooms with distribution and warehousing in the rear.

Retail is on the upswing as prosperity grows in the city, with more people venturing out to shops and restaurants. Development land zoned retail is increasingly difficult to find, and buyers are willing to pay a premium for suitable land. Private developers will pick up good locations if attached to a viable project. Grocery sites are highly desirable. Lease rates for new retail product –approaching $45 per sq. ft.— reflect the higher costs of land and construction.

Malls continue to perform well, attracting big-name retailers such as Nike, which recently opened its largest store in Canada at West Edmonton Mall, as well as American fast-food chains Chick-fil-A and Krispy Kreme. Renovations and upgrades are underway as landlords continuously seek to improve the shopping experience. The recent completion of the Mill Woods Transit Centre, a future stop on the LRT’s Valley line, has created future possibilities for the mall to enhance its value, while at the same time, helping to ease the city’s housing shortage. A masterplan created by the Mill Woods Town Centre includes a mixed-use development for the site featuring three high-rise residential towers.

Strip malls and retail centres remain popular in the city and peripheral areas. There has been a shift away from more traditional retail operations to more service-oriented retailers including medical and dental offices, health and wellness clinics, and hair and nail salons, just to name a few.

The weakest asset class in the Edmonton commercial real estate market is its office sector. Despite a report from Altus Group that found availability rates have edged slightly downward to 19.9 per cent in Q1 2024, compared to the previous quarter, the downtown core continues to struggle. Tenant flight to quality Class A buildings and the suburbs is still occurring, with net lease rates on the upswing, rising just over 10 per cent year over year, now priced between $25 to $27 per sq. ft. While rates have climbed, some of the older buildings in the downtown core are selling at close to land value as demand has essentially evaporated and REITs divest existing office portfolios.

Efforts underway to improve the downtown business district have resulted in some success, best illustrated by the increase in foot traffic. Restaurants are reaping the rewards as more people are drawn to the core in large part due to greater safety and security measures, hybrid work models and large-scale events including concerts and hockey games. New purpose-built rentals complement existing condominium developments in the core, with some office spaces transitioning to residential. The Phipps McKinnon Building, sold in March of this year, is the most recent project with the new owners planning a $22-million partial redevelopment including 90 residential units on the fourth to 10th floors.

The Edmonton commercial real estate market is expected to flourish in the future, as the population surges ahead. GDP growth in the city is expected to outperform the national average, with positive business sentiment driving investment this year. The stage is set for tremendous growth in the city’s bourgeoning tech sectors, specializing in nanotechnology, microelectromechanical systems, big data and analytics, and machine intelligence (AI), all of which will fuel increased demand for office, industrial, retail, and multi-family construction in the years ahead.