February Market Report
Uncertainty still looms over Canada’s economy due to unresolved international trade disputes as well as the finalized phase one U.S/China deal which could result in reducing demand for Canadian goods from both of those countries, and the growing concern of the coronavirus outbreak and how that will impact short-term global economic growth. Global markets have already seen a negative impact as investors have offloaded risky assets and transitioned to more secure assets such as gold on growing fears over the economic impact the virus could cause. Additionally, oil prices could see a 4% decline due to fears of weaker demand from China along with expected declines in tourism and air travel as Canadians hold off on their travel plans. Looking back at the summer of 2003 SARS outbreak, although there was a sharp short-term hit to GDP, there was also a sharp rebound afterwards, resulting in 2003 Canadian GDP being reduced by a net 0.1% or $1.6 billion, a problem that could likely repeat itself if the current situation does not improve. Depending on the impact of the virus, we could potentially see the Bank of Canada dropping its key interest rate as early as March to combat the expected decline in economic activity.
On the domestic front things are finally starting to move in the right direction for Calgary’s office market as the city’s Economic Development departments’ recent efforts to promote and attract investment in technology industries outside of the traditional oil and gas sector has been able to entice global software development company, ESQ Business Services from Silicon Valley to open its first Canadian support and software development centre. Although the firm was initially looking at Vancouver and Toronto as entry points into the Canadian market, Calgary Economic Development was credited with making the decision an easy one for the company by working with its partners to shorten the initial start-up process by several months according to its CEO. Granted that the firm has not made any official announcement on how much space it will take or the number of employees it plans to hire, it is a step in the right direction to start chipping away at downtown Calgary’s current office vacancy rate of 18.5%. The firm will also be able to take advantage of Canada’s lowest downtown office rent, currently averaging a net rate of $12.69 per square foot.
At the provincial level, Alberta’s Minister of Economic Development is also working diligently to come up with the best ways to attract further investment to the province. The Minister is open to extending the February 28th deadline for a high-tech panel report that will outline the best ways to attract investment by not only comparing best practices across North America but new ways as well. The release of the report is not expected to take away from the provinces’ guiding philosophy that an economy is best managed via system-wide changes rather than boutique programs and micro-incentives as the UCP government scrapped multiple tax credits created by the previous government aimed at helping the small but growing tech sector. City officials in Edmonton hope that the Minister’s work will continue to add to the 394 tech companies already operating in the city, which has contributed to tech employment growth of 26% over the past five years to 28,400 employees.
Edmonton is also paving the way for additional industrial condo development with the announcement of PC Urban planning to convert a 100,000 square foot warehouse in South Edmonton into a 13-unit small-bay condo business hub known as Davies Station. The development expands on PC Urban’s massive success introducing industrial condo units in Metro Vancouver by servicing a niche market for those industrial tenants who require between 5,300 and 12,400 square feet of space. This is not the first project in Alberta for PC Urban as they also completed a similar conversion within the Core Business Park in Calgary, which is now 60% sold. For owner/operators looking to build equity into their businesses while also avoiding drastic rent increases in the long-run, this form of real estate acquisition may be a viable option. In 2019, industrial condo sale prices averaged $165 and $211 per square foot in Edmonton and Calgary, respectively.
Retail sales continue to be a growing concern in Alberta as the latest data shows that sales declined by 3.0% in November compared to the same time last year, amounting to the largest drop across Canada. With everything riding on the performance of the final holiday shopping rush, December retail results would have had to been stellar to get Alberta back on track. Luckily, major shopping malls in Alberta are still performing relatively well. In fact, Southgate Shopping Centre in Edmonton and Chinook Centre in Calgary were able to finish in 5th and 6th place in terms of most productive shopping centres across Canada with sales per square foot topping $1,121 and $1,119, respectively, according to the Retail Council of Canada. Calgary’s Market Mall also saw an increase in sales by 1.67% to reach $914 per square foot. Although West Edmonton Mall did not make the top 30, it did finish in second place in terms of visitation with 30 million annual visitors.
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Photo & Content Credit: CoStar Canada