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Industrial demand helps Edmonton CRE buck national trend

Industrial property and land transactions showed some strength in Edmonton’s pandemic-battered co...

Industrial property and land transactions showed some strength in Edmonton’s pandemic-battered commercial real estate market in the second quarter of 2020, according to a report from Altus Group’s Data Solutions.

All markets in Canada, including Edmonton and the province of Alberta, have been subject to the COVID-19 slump said Ben Tatterton, manager, Data Solutions at Altus Group. But, the city’s industrial asset class has shown some “relative strength”.

“The industrial sector has been resilient throughout the year. Much of the business it was conducting managed to remain open as essential services, so that helped the sector,” Tatterton told RENX.

The Altus report shows 79 commercial real estate transactions in the second quarter in Edmonton totalled $249 million.

The total for the first half of the year was $1.3 billion, up from $1 billion during the first six months of 2019 and bucking a nationwide trend which saw investment down in all other major markets. By comparison, investment in Toronto commercial real estate dipped 22 per cent year over year, almost 30 per cent in Vancouver, 27 per cent in Ottawa, and 17 per cent in Montreal.

In Calgary, overall investment mid-year was down nine per cent to about $1.2 billion.

Industrial drives Edmonton statistics

There were 24 transactions in the Edmonton industrial asset class in Q2, totalling $88 million. Industrial demand was up 22 per cent in Q2 2020 over Q2 2019. Tatterton said the sector is being driven by the trend to e-commerce.

“The largest transactions we saw . . . were large warehouse facilities, larger distribution centres, with multiple truck-level doors and distribution features.”

Calgary exhibited a similar pattern, with quarterly overall commercial property transactions dropping 15 per cent from Q2 2019 to $390 million in 84 transactions. Twenty-four industrial transactions totalled $112 million, 29 per cent of Q2 activity.

Land sales were strong in both Alberta cities, with Calgary figures slightly skewed by one large residential land sale. Qualico bought close to 490 acres for $171,313 per acre. The site is part of Qualico’s mixed use community which is proposed to ultimately support a population of 58,800.

In Edmonton ICI performance has been consistent for the past several years, says the Altus report, with Q2 showing 29 ICI land transactions totalling $84 million.

“The ICI activity is attributed to land that is zoned industrial or commercial/industrial,” says Tatterton. Industrial- and agriculture-zoned lands are moving, he said, “but not a lot of retail-zoned lands.”

Some retail properties selling

Retail properties are still moving despite the pressures of online commerce. For instance, an automotive facility in Leduc, south of Edmonton, with a 40,739 square foot building and 6.5 acres of land sold to Go Auto.

There were nine retail transactions in the second quarter, totalling $36 million. The first half of 2020 came in slightly higher than 2019; $155 million compared to $130 million.

“There’s been some relative strength in terms of demand for things like drive-up/drive-in shopping centres,” said Tatterton. “Those haven’t fallen completely off the map.”

In Calgary there were 13 retail transactions worth $54 million.

On the apartment front, in Q2 Edmonton saw the lowest transaction activity since Altus has been tracking commercial property.

But Tatterton said that drop is more attributable to the peaks and valleys common in the apartment asset class. Apartment transactions for the first half of 2020 was well ahead of 2019 thanks to a flurry of activity in the first quarter.

“We saw in Q1 the sale of several large portfolio transactions, several different deals totalling roughly over half-a-billion dollars and then the sharp dropoff in Q2 where we only saw $14 million in sales,” said Tatterton. “I don’t think you can attribute that to COVID because there’s always been a spiky nature in the apartment sector.

“It’s all driven by large institutional investors buying portfolios . . . a whole bunch of activity in one quarter and then nothing in another.”

Altus predicts industrial, land sales to stay strong

Tatterton said the overall commercial property transaction pattern for Q2 involved a trickle of apparent activity at the beginning of the quarter as lagging deals were finalized.

“We started to see the real dropoff happen as we moved forward into the months of May and June.”

He predicted the shift of interest to industrial and land will continue over the next couple of quarters as the economy cautiously reopens. The Alberta market is also facing the “longer lasting impact” of the energy sector, according to the report.

One area that has been hit hard is office space in both cities. In Calgary there was one transaction in Q2 for $1.5 million. Edmonton did little better with four transactions totalling $9 million.

Tatterton said he sees no turnaround in that class in the short term.

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