- What Office vacancy rates in Edmonton are generally decreasing, Avison Young said in a report
- Why Absorption was positive in the suburbs but negative downtown
- What next AY warns shrinking office property assessments could affect other asset classes
Edmonton’s office market is continuing to hum along, with the vacancy rate dropping once again in Q3, Avison Young said in a new report.
Across the city, the vacancy rate fell 13 basis points to 16.7%. The rate dropped the most in the suburbs – down 32 bps to 14.9% – while it ticked up 5 bps downtown to 18.3%.
Edmonton notched its fifth quarter of positive absorption, AY said, totaling nearly 14,000 sq ft in Q3. Total absorption for the year has surpassed 220,000 sq ft, on track to exceed the 2023 total.
Positive absorption was strong in the suburbs, while downtown saw negative absorption, driven largely by the departure of Ketek Group from a 27,000 sq ft space on 184 Street and a 50,000 sq ft sublease by Intuit in the Epcor Tower.
The average net asking rent for trophy-class office space was $34.50/sq ft, with class A and B office space hovering at $17.43/sq ft and $13.95/sq ft.
But as the vacancy rates drop, the city is also dealing with a “significant decline” in its office property tax base, the brokerage said. AY warned that the trend could impact owners of other asset classes and even homeowners through increases to their property taxes to make up for the loss.
The firm highlighted Sun Life Place, Phipps McKinnon, Plaza 124 and others as having seen their assessments shrink, reducing their taxes in the process. The brokerage estimates the reductions have taken about $1m out of the city’s tax coffers over the last two years.
“This office tax base erosion underscores the broader economic challenges facing Edmonton’s commercial real estate market,” AY said, “and with the inability to run a budget deficit, the City of Edmonton’s financial strategy stands to be tested in the coming years.”
On the sales front, transaction activity slowed markedly in the third quarter compared with the second. There were just three sales totaling $37m in the most recent period, down from 14 deals tallying $88.5m. However, the average per sq ft price in Q3 was 43% higher at $122.22.
“Year-to-date (YTD), the market has seen 23 office sales, totaling $143.1 million and covering 1.5 msf, with an average price of $95.18 psf,” the firm said. “While the number of transactions has slowed in the second half of the year, the rising price per square foot highlights growing interest in select office properties.”
Key Q3 transactions include the $33m sale of the 289,000 sq ft Sun Life Place by Slate Asset Management to Ironwood IV in early October. The price works out to $114/sq ft.
