Rebounding oil and gas markets won’t have the impact on Alberta's industrial and commercial real estate seen in the past, according to CBRE Ltd.
Diversification in the province’s industrial real estate markets picked up speed during the latest downturn and accelerated during the pandemic. The result is that distribution space, cleantech and other sectors have made for a wider tenant mix, while oil and gas companies are rethinking space demands.
“You’d think with $100 oil, you’d see a massive uptick in office space or a massive uptick in industrial space, but that hasn’t been happening. It’s been the Ulines of the world,” said Dave Young, managing director with CBRE in Edmonton. “You’ve got a lot of different things occurring that are not traditional energy plays.”
Distribution uses are leading the charge. Young can’t remember a time when the Edmonton market was this active, with several large tenants competing for space in a market where vacancies ended 2021 at less than 5 per cent. Net absorption approached 4 million square feet last year and is set to exceed 4.5 million square feet this year.
With strong demand and no meaningful new construction in the pipeline, rents have rebounded past pre-pandemic levels. CBRE expects them to approach $10.60 a square foot this year.
“We see rental rate growth here being a real opportunity for some existing landlords,” Young said. “That will spur some new development in the 2023 range.”
One of the largest deals last year was Uline Inc.’s lease of 590,906 square feet that Quadreal built to suit at Anthony Henday Business Park in St. Albert. OK Tire followed, leasing 196,700 square feet in an adjacent building late last year when it couldn’t find space in B.C.
“The fact that Port of Vancouver is extremely busy, we’re starting to see tenants take a look at Alberta, Calgary and Edmonton,” Young said. “OK Tire has done a deal here as a direct result of not being able to locate space in other markets.”
But don’t discount the oil and gas sector, he warned.
“It’s interesting to see how energy has replaced COVID on the front page of every paper recently,” he said. “But that hasn’t led to a tremendous amount of uptick in new space. They’re doing more with their existing base.”
As oil and gas regains its groove, suppliers to the sector are the ones to watch, he noted.
“A lot of the companies that will service the new developments are benefitting from the higher oil price and taking space,” Young said. “It goes to show you that even with the biggest driver of our economy not taking tremendous amounts of space, and absorption where it is, specifically in the industrial market … markets are maturing, and it’s not just directly related to oil and gas.”