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January 2019 Market Report - Alberta


MARKET SUMMARY

As we move into 2019, Canadian Real GDP growth is expected to grow at a modest level of approximately 1.7%, after a continued decline from 3.0% and 2.0% in 2017 and 2018, respectively. Pressure from Alberta’s oil industry, as well as a slowdown in the housing market and geopolitical trade issues are primarily to blame. This in turn has led the Bank of Canada (BoC) to hold off on increasing interest rates in December 2018, after five rate hikes since mid-2017, and to take a more dovish tone in regards to future rate hikes. After a fairly strong start to 2018, the slump in the oil patch took the wind out of the Alberta recovery, and the province has moved from a top performer to one of worst performers in the second half of 2018, and expectations for 2019 are for much of the same. Specifically, GDP growth is expected to decline to 1.5% in 2019 from 2.4% in 2018. Alberta is only expected to surpass Nova Scotia and New Brunswick in terms of growth, however the Maritime Provinces are typically the lowest performers in terms of GDP growth in Canada. GDP growth in 2019 is also expected to be 20 basis points (bps) lower than that of Canada, which is expected to see GDP growth of 1.7% in 2019. It will take several quarters to determine the impact of how the market will respond to oil price fluctuations and inventory cuts in the market before Alberta can regain momentum, but this momentum is not expected to return until 2020. This bleak outlook for economic growth in Alberta has also pushed residents in Calgary to vote against bringing the 2026 Winter Olympics back to the city in an overwhelming 56.4% vote not to continue with the Olympic Bid.


Labour market indicators showed signs of slight improvement over the past two years, with employment growth in 2018 up 90 bps year-over-year to 1.9%. The unemployment rate also showed signs of improvement with a 110 bps reduction year-over-year to 6.7% at year-end 2018, however it should be noted that the unemployment rate is expected to remain stable near the 7% range through 2020. It is expected that over the next two years that net immigration to the province will continue to grow after several years of outflow from the province due to declining opportunities. Many residents of British Columbia (BC), especially those in the early stages of their careers and those nearing retirement, are contemplating moving to nearby provinces, especially those in the early stages of their careers and those nearing retirement, due to the high cost of living in BC. This could contribute to Alberta returning back to positive net interprovincial immigration, however, for those in the early stages of their career, they would need to find a job first, which could prove difficult in Alberta. 


Retail sales in Canada as a whole is expected to slow in 2019, and in Alberta this slowdown will be exacerbated by the pause in the provinces economic recovery. Like many other provinces, inflation is expected to decline in 2019 with Alberta expected to post only a 1.8% increase in the Consumer Price Index (CPI). The Alberta market will continue to see a sluggish housing market as it remains heavily oversupplied and households continue to try and balance their budgets, and as a result, both residential prices and sales volumes were down in 2018 and expected to remain weak in 2019. It is expected that builders will respond by either modifying, delaying, or completely scrapping new housing development projects in the province until more concrete signs of recovery and net migration are present.


Given the recent economic uncertainty for the province, there were signs of improvement to the office market in both Calgary and Edmonton. Vacancy rates dropped by 90 bps to finish the year at 14.9% in Greater Calgary. Edmonton completed 2018 with a decrease of 270 bps to complete 2018 at 8.4%, providing a positive outlook to the office market in Alberta. It should be noted that the larger improvement in the Edmonton office market was possible even with the delivery of Stantec Tower which introduced over 700,000 square feet of new supply to the Edmonton market in the fourth quarter of 2018. Standing at 66 storey’s, this new iconic building is the tallest building west of Toronto. Both cities still continue to see negative rent growth, however not as dramatic as the levels from the beginning of 2017. Expect negative rent growth in the range of 9% in Calgary and negative growth of approximately 3% in Edmonton over 2019. Asking rents finished the year off at $26.92/sq. ft. per annum and $28.86/sq. ft. per annum in Calgary and Edmonton, respectively. Going into 2019, Calgary will continue to see relocations occurring as the downtown office market continues to be more attractive to tenants looking to capture the value addition compared to their existing space in suburban markets. 


Calgary’s industrial market is in better condition than its office market. Vacancy decreased from 6.4% at year-end 2017 to 5.2% to close out 2018. Although faced with negative rent growth with asking rents currently at $9.98/sq. ft. per annum, it is slowly inching forward to transition to positive rent growth, likely to occur in 2020. The current transition was supported with 4.4 million square feet in net absorption in 2018. Even with 3.5 million square feet under construction, demand from the transportation and logistics segment is expected to push vacancy down to 4.4% by the end of 2019. 


Edmonton’s industrial market is not expected to perform as well as Calgary, however, Edmonton has seen vacancy improve by 20 bps between year-end 2017 and year-end 2018 to 5.6%. Current forecasts expect vacancy to decrease to 5.3% by the end of 2019, especially with firms such as Amazon, Aurora Cannabis, and Ford Motor Company increasing their positioning in the area. The presence of these large production and distribution facilities will also encourage other input suppliers to form clusters in the surrounding area, potentially increasing demand for industrial space. Asking rents at year-end 2018 were at $11.12/sq. ft. per annum with rent growth effectively zero in 2018. Expect much of the same for rent growth in 2019, before the market slowly returns to positive rent growth in 2020.


Retail vacancy in Greater Calgary increased in 2018, up only 30 bps from year-end 2017 to end 2018 at 2.9%. Vacancy is expected to remain relatively stable in 2019, however, positive rent growth is expected by the end of 2019, albeit by only 1.4%. As of the end of 2018, Calgary retail asking rates were $25.96/sq. ft. per annum. Edmonton also produced similar results in the retail sector with a 110 bps improvement in vacancy year-over-year to end 2018 at 2.9%, with an average asking rent of $22.04/sq. ft. per annum. With just over 1.2 million square feet of new supply expected in 2019, Edmonton’s retail vacancy is expected to increase only slightly to 3.3% by year end 2019. One the cannabis front, Westleaf Cannabis announced a $7.5 million investment in cannabis retailer Canndara Canada. This strategic investment will position Westleaf as one of the largest premium Canadian retail players, via its Prairie Records brand. The company plans to rollout up to 30 retail locations by 2020 which will focus its positioning in premium retail locations across Western Canada, including Alberta’s first location in Calgary’s Palace Theatre. 

OVERALL MARKET ACTIVITY

PROPERTIES FOR SALE 

CALGARY

ACTIVE

921

ADDED

61

SOLD

93

 

EDMONTON

ACTIVE

1,132

ADDED

146

SOLD

58

 

SPACES FOR LEASE

 

CALGARY

ACTIVE

3,882

ADDED

150

LEASED

171

 

EDMONTON

ACTIVE

3,250

ADDED

183

LEASED

124

 

MARKET ACTIVITY BY ASSET TYPE
OFFICE

 

CALGARY

VACANCY

15.0%

AVG SALE PRICE*

$206/sq. ft.

AVG. RENT

$27.03/sq. ft.

 

EDMONTON

VACANCY

7.9%

AVG SALE PRICE*

$234/sq. ft.

AVG. RENT

$28.88/sq. ft.

 

INDUSTRIAL

 

CALGARY

VACANCY

5.2%

AVG SALE PRICE*

$141/sq. ft.

AVG. RENT

$9.98/sq. ft.

 

EDMONTON

VACANCY

5.8%

AVG SALE PRICE*

$138/sq. ft.

AVG. RENT

$11.12/sq. ft.

 

RETAIL

 

CALGARY

VACANCY

2.7%

AVG SALE PRICE*

$427/sq. ft.

AVG. RENT

$25.95/sq. ft.

 

EDMONTON

VACANCY

3.0%

AVG SALE PRICE*

$301/sq. ft.

AVG. RENT

$22.07/sq. ft.

 

*Last 30 Days