April, May and June 2019 among slowest months for commercial sales in the past decade
The much appreciated Mid-Year Market Report was just released by The Network, and the conclusions were pretty spot on to what we have been experiencing on the front lines (of commercial brokerage). While activity has stayed fairly constant with regard to tenant/purchaser requirements and listings, the deal flow has been slow as most companies continue to have a low risk tolerance in Alberta. Add to this the much anticipated Federal election expected in October of this year, and there has been a mentality of hurry up and wait…until there is a change up federally that is.
Now let’s get to the meat and potatoes of where values are at in Edmonton. The last quarter showed transaction volume of just 31 sales in April, 37 in May, and 34 in June (The Network). Overall, the dollar value that has transacted is quite significantly less than the same time in 2018, however we can account for some of this decline via some major transactions that took place last year, particularly the $400,000,000 sale of Edmonton Tower. Land sales this past six months have stayed fairly consistent with the same time in 2018, and increasing reasonably in value from 2017, so perhaps this bodes well for future development.
Source: The Network 2019 Mid-Year Market Overview
While the numbers above look fairly grim, there were also some great sale transactions that took place in Edmonton over the past six months. Of note:
Industrial
11755 - 108 Avenue – 6 Building York Portfolio to GPM - $24,500,000
4104 - 78 Avenue – Sherwood Park Business Centre - $18,300,000
17306 - 116 Avenue (Winfield Distribution Centre) - $17,525,000 (Part of a $79,550,000 Alberta Portfolio Sale from BCIMC to Summit Industrial REIT)
Retail
10358 - 82 Avenue - Anchored by Starbucks & BMO - $12,500,000
8402 - 109 Street (109 Garneau) - Anchored by Starbucks & Dominos Pizza - $7,600,000
Office
10018 - 106 Street – Notlem Building - $4,000,000
Across the board, there has been a flight to quality, meaning that tenants and purchasers are shifting laterally into better quality product for comparable (or sometimes lower) rates due to the higher proportion of supply to demand. The capital markets asset class has also been negatively affected, as I’m sure many commercial investors have noticed. Due to the smaller proportion of expanding tenants in the market, combined with multiple consolidations and right-sizes, there are fewer fully occupied facilities with long-term, covenant tenants available. This means that there are less investment properties trading as the individuals who do have quality assets are hesitant to sell them while there are limited options for onward placement of capital. (On this matter - see also my previous blog: Improving Canada's real estate investment and taxation policies - where's our 1031 exchange?). However, as you can see from the transactions noted above, there are still excellent deals happening and I think as we near the final months of 2019 and head into 2020, the pulse will start increasing again, especially if there is a shake-up in Ottawa. Patience is the name of the game right now, alternately, so is creativity!