Edmonton investors snatch up 12 local buildings

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Over the past 18 months, 12 office buildings were bought by local private investors, dropping a combined $135 million into the Edmonton market.

Edmonton’s real estate market continues to attract national attention. It’s relative affordability compared to other major cities in Canada makes it an enticing option for new Albertans looking to get a foothold in the real estate market, but the activity isn’t just in the residential market. Commercial real estate in the capital city has also ramped up and local investors have been jumping in where national investors won’t.

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Cory Wosnack, principal and managing director at Avison Young, is glad to see the trend.

“It’s an unusual reflection on where the activity is right now. And it’s really exciting because it speaks to the level of confidence that those that are in the local community feel about their economy,” said Wosnack.

The purchased buildings include:

• Whitemud Business Park
• Broadmoor Boulevard (Broadmoor Place A and B and VII and VIII)
• Clark Builders Place
• 5241 Calgary Tr.
• 10451 170 St.
• Compass Place
• Plaza 124
• Parkwest Business Centre
• Phipps McKinnon Building
• Empire Building
• Sun Life Place

The gap that local investors are getting into was created by institutional investors holding on the sidelines — a trend that an Avison Young second quarter report noted is happening across the country. The report indicated that institutional investors accounted for just five per cent of second quarter sales volume while local private investors swept in with 82 per cent of the second quarter sales volume. Although the report shows just the past quarter, Edmonton has been demonstrating high degree of local activity for 18 months.

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Wosnack said that 11 of the 12 buildings were purchased from non-local investors, creating a higher concentration of locally owned assets.

“I think it’s a real testament to those that are in the trenches here. They see an opportunity more so than those that aren’t in the local community,” said Wosnack.

Wosnack attributed the interest from the local investors to a few key points.

“We have more attractive pricing than we’ve seen in 20 years.”

Lower prices are attractive to buyers for obvious reasons. In a market that could be dominated by institutional investors, it’s a relatively affordable time for local private investors with less competition than in previous years giving them not just the chance to bid but a real opportunity to buy.

“We have had a flattening out of the cost to construct and furnish office space,” said Wosnack.

After acquiring a property, new owners often have to renovate the space to attract new tenants. It’s an important piece to the investment strategy in an office space, Wosnack said. Construction in the new office space can add new tenant inducements, which are amenities in the building that make the property more attractive to prospective tenants, such as a gym, collaborative space, or a cafe, for example. They’re often extensive projects that can balloon in cost quickly, which is why the flattening of the cost of construction is so important to the local investor.

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“We also now have more attractive financing. We have predictability in the financial system. Interest rates have not only not gone up, they’ve actually now declined,” said Wosnack.

In July, the Bank of Canada cut its key interest rate for the second consecutive time, bringing it to 4.5 per cent, which has encouraged consumers and investors alike, perhaps including the investors of the 12 buildings, who Wosnack said were not in the market just five years ago.

While the investment by local private investors is an indicator of the strength of local buying capacity, it’s worth wondering why institutional investors are pulling out — or staying out — of the market. Of course, since the pandemic, office vacancies have soared across the country, including Edmonton.

But the locals might be seeing something in a crystal ball that outside investors don’t.

Recently, Edmonton’s office rental market has shown some signs of life. The prevailing trend is a strong market absorption of high-quality buildings, often referred to as “flight to quality,” which is why the price of construction has such a significant impact for investors. Those looking to make a return on investment must upgrade existing building to ensure they have competitive amenities.

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The locations of the 12 building acquisitions are spread out throughout the city, which Wosnack said is indicative of a separate, but still positive, trend.

“We do have different parts of the city that succeed in different ways for different reasons.”

The key, he said, is vibrancy.

“When there’s no vibrancy, there’s no success. Right now, we are in a generation mindset where employees and residents want to live, work, and socialize in vibrant neighborhoods. Office buildings are succeeding in vibrant neighborhoods,” Wosnack said.

While the Phipps-McKinnon Building is the only one among the dozen to be converted to residences, Wosnack remains a vocal champion for increasing office-to-residential conversions throughout the city. He said the diversity in use attracts tenants of both the office and residential space due to the current societal preference for vibrancy. However, he said without a program from the City of Edmonton to incentivize the conversions, the risk remains too high for most investors.

Still, Wosnack is heartened by what the acquisitions mean for the Edmonton commercial real estate market, which is showing faith in itself.

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“It’s now opening doors for new investors to come forward and take advantage of these variables. And we’re going to have a new generation of investors that will be important parts of the real estate story.”

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