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As return-to-office unfolds, downtown Edmonton sector languishes

Luring workers back downtown is the key to revitalizing Edmonton’s office sector, commercial real...

IMAGE: CWB Financial Group will move its HQ in Edmonton to a new 16-storey ICE District office tower. (Courtesy CWB Financial Group)

CWB Financial Group will move its headquarters in Edmonton to a new 16-storey ICE District office tower in the downtown. (Courtesy CWB Financial Group)

Luring workers back downtown is the key to revitalizing Edmonton’s office sector, commercial real estate experts agreed at the recent Edmonton Real Estate Forum.

The city’s office vacancy rate is the second-highest of Canada’s major markets, hovering around 19.8 per cent in Q1 2022, according to Altus Group figures.

However, safety in the city core and the demand for more flexible working arrangements present hurdles to getting back to pre-pandemic vitality, several speakers said at the conference.

“I really like what the city has done about the ICE district and the revitalization of downtown, but then you had the pandemic and it was two steps forward, three steps back. It has gutted the downtown,” said Stephen Murphy, executive vice-president, banking, CWB Financial Group.

CWB recently signed on as anchor tenant at the final office tower to be constructed at ICE District, a 16-storey building to be delivered in 2025. CWB will lease nine floors and about 200,000 square feet of space.

Murphy said a real focus on homelessness, poverty and mental health is needed to revitalize the downtown.

Safety, security key issues for Edmonton

Edmonton city manager Andre Corbould acknowledged the safety and security issue downtown has been a hot topic at city council in recent weeks. The city is enhancing transit safety enforcement and adding multidisciplinary teams, including police, social workers and mental health specialists to the downtown core, he said.

Lisa Baroldi, president and CEO of BOMA Edmonton, said her association has tapped into City of Edmonton funding provided through the downtown vibrancy strategy to survey 30 property managers about safety and security issues in the core.

The resulting information will be shared with the city, the police and amongst the property owners.

Speakers agreed safety and homelessness issues aren’t unique to Edmonton. Perceptions are magnified by the lack of people in the downtown.

With more office workers and residents downtown, the problem would not be as evident, speakers said.

Baroldi suggested government has a role to play in getting its own employees back to the core.

“A large per cent of our office market here in Edmonton are government employees,” she said.

“Not to put the province on the spot or anything, but to allow public servants to work from their homes two days a week is a problem. Public servants should be in the public serving us.”

Amenities key to luring workers back

However, Lee Kiziak, vice-president, corporate real estate for engineering and design firm Stantec, said it’s challenging to get staff back into office towers after two years at home, particularly when there is so much competition for talent.

“We’re going to have to ramp up amenities to give people a reason to want to come to work,” he said.

Kiziak said that Stantec has an office in Los Angeles which now has a doggy day care in the building, which was very well received.

Avison Young principal and managing director Cory Wosnack said downtown building owners need to consider the cost of parking, particularly when employees are often only coming into the office two or three days a week.

“Why aren’t landlords reducing the cost of parking significantly and getting more parkers in the parkades? . . . If we can fill the buildings and parkades, it’s good for ground-level business and that’s good for getting employees back, so there’s an opportunity there,” he said.

Developers expressed continued confidence in class-A and class-AAA properties.

IMAGE: Darren Durstling, CEO of ONE Properties. (Courtesy ONE Properties)

Darren Durstling, CEO of ONE Properties. (Courtesy ONE Properties)

“Where we see demand for office in Edmonton historically is from national or international clients or tenants – banks or insurance or law firms that are national or international in scale,” said Darren Durstling, president and CEO of ONE Properties, the prime developer of the ICE district. “They want to elevate their position in Edmonton.”

Top-quality space remains in demand

Kevin McKee, CEO of Pangman Developments, which developed the Enbridge Centre in the financial district, added that Edmonton-based tenants are also prepared to pay for top-quality office space.

That flight to quality is pushing up vacancy in class-B and -C  buildings in both Edmonton and Calgary.

Rob Blackwell, CEO of Aspen Properties, said his firm is taking advantage of a municipal strategy in Calgary which will pump $450 million into the conversion of downtown office properties into residential buildings.

The City of Calgary expects to come out ahead on the incentives.

“I call it a culling of the herd strategy to reduce the B and C (class) market,” said Blackwell. “Then it’s a numerator/denominator issue: vacancy rates go much lower percentage-wise which converts into . . .  growth, which converts into higher taxes.”

Attracting both workers and residents downtown will rejuvenate cores, speakers agreed.

A downtown Edmonton case study

Sarah Itani, business development manager for Cidex Group of Companies, described her firm’s apartment project in the Quarters, a downtown neighbourhood where the City of Edmonton is encouraging redevelopment.

The Hat @ Five Corners is a 25-storey residential tower with retail space on the main floor.

Itani said her firm’s challenge is developing a high-quality asset in an up-and-coming neighbourhood. The retail mix on the main floor is key.

”You may see some vacancy for some time. That’s intentional, because we want to have the right tenancy base in there to add to a positive amount of foot traffic.”

The Hat includes a mix of studio, one-, two- and three-bedroom rental units.

“Our penthouses were the first to lease up. . . . People believed in the neighbourhood. They were ready and willing to take on the bigger square footages, those gorgeous views and they knew the neighbourhood would come,” said Itani.

Qualico Properties is developing significant residential space in the core.

Senior vice-president Mike Saunders said the firm plans an eventual build-out of 2.5 million square feet of residential in its Station Land property. The company is starting construction on 605 units in two towers, he said.

“We’re on target to turn over 285 units in about two years from now.”

Saunders said the firm has a plan for an amphitheatre for public outdoor performances.

“Having that amenity in the backyard is a pretty distinct feature for the site.”

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