The office investment sector in Edmonton is experiencing one overarching trend these days – the “total dominance of private buyers” in transactions during the past couple of years according to Avison Young’s Capital Markets Team.
“Avison Young has continued to represent many publicly traded and institutional vendors (including Melcor REIT, PROREIT, Slate Asset Management, Manulife, Artis REIT, Canadian Urban, AIMCo), but less than two per cent of our buyers since 2020 have been publicly traded companies,” Cory Wosnack, principal and managing director of Avison Young in Edmonton, told RENX.
He said in the past year-and-a-half 12 office buildings larger than 60,000 square feet have been sold. Eleven were divested by large investment funds with national or international portfolios. All 12 properties were acquired by Edmonton-based investors.
“As institutional investment funds reallocate their portfolios to different asset classes and geographies, Edmontonians have invested $135 million, leveraging their knowledge of local market dynamics and the economic growth driving the region forward,” he said.
“Looking ahead, the investment market is expected to maintain a moderate growth trajectory. The projected transaction volume for 2024 suggests a continued healthy interest in the region, albeit with more conservative average sale prices compared to the previous peak.
“The multifamily and industrial sectors are likely to remain strong, while the office and retail markets may continue to experience volatility as they adapt to new market realities.”
Office market transaction roller-coaster
Wosnack said the office market experienced a sharp decline in sales volume in 2021, dropping from $212.9 million in 2020 to $37.1 million.
While there was a slight recovery in 2022 and 2023, with figures of $79.5 million in each year, there was $68.8 million in sales value in Q1 2024 alone. This opens up the possibility of seeing total sales for the year triple the value of what traded in 2023.
He said industrial properties have seen substantial growth, with sales escalating from $144.5 million in 2020 to $680.7 million in 2022. However, 2023 saw a decline to $496.1 million, and Q1 2024 reported $117.4 million, indicating a possible stabilization.
Avison Young data indicates retail investments have fluctuated, with a notable surge in 2023 to $688.6 million, up from $221.9 million in 2022. Q1 2024 shows a downturn with $43.5 million, potentially signaling market corrections or seasonal variances.
Multifamily assets consistently attracted high investment, growing from $573.1 million in 2020 to $911.1 million in 2023. Q1 2024 reflects strong performance with $229 million. The forecast for 2024 projects continued strength, with total sales expected to reach $916 million.
Trends in recent CRE sales
Wosnack said land sales continued to garner attention, especially in 2021 and 2022, with values of $762.4 million and $729 million, respectively. Despite a drop to $664.8 million in 2023, the Q1 2024 report shows $166.8 million of activity, demonstrating strong interest. The 2024 forecast anticipates land sales to total $667.2 million.
Wosnack said the data indicates a few clear trends:
- Resilience in multifamily and industrial sectors: These sectors have shown robust performance, likely driven by strong rental demand and the need for logistics and warehousing space.
- Fluctuations in office and retail: The office market is struggling to regain its pre-pandemic footing, while retail has seen more volatile changes, reflecting broader economic uncertainties and changing consumer behaviours.
- Strong land investment: The sustained interest in land sales reflects ongoing development opportunities, driven by population growth and urban expansion.
“Edmonton is a fascinating market because it rarely shouts. Success in Edmonton whispers,” Wosnack said. “It really is a marketplace that is largely built on the investment of local investors and family offices and it is not a city that is pulled in the direction of institutional capital. It truly is a marketplace that is on the backs of the risk takers that are local.
“It’s a fascinating look at the mindset of the local investment community. And those that are in the trenches here, those that understand the direction of the local economy, those that are passionate community leaders, they can assess the health of this marketplace better than those that aren’t in it. And they see something. They see the opportunity to put a lot of their own capital into this marketplace.”
Rohit Group has acquired two buildings
The Rohit Group is an example of that. In the past year or so, it purchased two office/commercial properties for about $31 million – both on Avison Young’s list.
Rohit Gupta, president of the Rohit Group, said Edmonton-based real estate professionals are bullish on the local market.
“We’re seeing the strength in the oil industry. We’re seeing growth in population and we’re just seeing general strength in all businesses we talk to,” Gupta said. “As we interact with community leaders or different business leaders, whether it’s in Edmonton or whether it’s in Calgary, we just feel a renewed optimism or strength that we don’t hear when we go across Canada to other businesses in other provinces.
“And that level of business confidence is high.”
Rohit intends to continue operating its two acquisitions as office and commercial properties.
Another local investor, Kastel Holdings, told RENX in an earlier interview it intends to continue operating the Empire Building at 10080 Jasper Ave., as an office as well. It acquired the 109,000-square-foot building in March, one of four mid-sized office trades during the month.
In the most recent transaction, Slate Asset Management sold Sun Life Place at 10123 99th St., to Ironwood Management for $32.5 million. It is also the largest of the recent transactions, comprising just over 288,000 square feet.
Gupta said Rohit will continue to invest in the local market and is seeking assets in the multifamily, office, retail and health care sectors.
“We have exposure to all four asset classes and we’re looking at opportunities constantly in all four asset classes,” he said.
