Investing in Edmonton Industrial Real Estate, 101
Edmonton, the land of roughnecks and public servants, tradies and tech geeks. It’s a city that can’t be defined as one thing, and doesn’t really want to be. Diverse, entrepreneurial, steady Eddy, whose unique value proposition resides at the intersection between traditional and emerging sectors. It’s no wonder that people are taking notice, and not just because of our soon to be Stanley Cup Champions. In today’s unpredictable markets, institutional investment has become more conservative. When analysing commercial real estate opportunities, this has opened the door for smaller, private entities who are more capable of taking risks, to take advantage in markets like Edmonton that are not fully understood. For those that are comfortable with the fundamentals and flows of this market, investment opportunities are apparent.
Now for years, investors and economists have been the most bullish on multifamily and industrial because the most attractive real estate is real estate that is needed, not wanted, particularly in our highly irregular markets of late. Ultimately, real estate fundamentals are a reflection of labour and the consumer, and as markets veer from inflation to deflation, the changes in these interests directly trickle into brick and mortar demand. For this article, I will skim over multifamily by saying I think it will be needed for years to come, and thus will remain a desirable investment asset for private and institutional players. Diving deeper into industrial as an investment vehicle, the following article will address the Edmonton industrial landscape, its major industries, and expected returns.
Understanding Edmonton's Industrial Landscape
The Edmonton Region is made up of 13 municipalities, 1.56 million residents, and stands out as the 5th largest economy in Canada, due largely in part to its status as a thriving industrial hub in the resource rich province of Alberta.
Submarkets:
Northwest Edmonton: This varied submarket boasts a strategic location, with easy access to major transportation routes. It is home to a wide range of industrial properties, including warehouses, distribution centers, and manufacturing facilities. This quadrant intercepts the major east-west Highway 16, an important logistics corridor for the transportation industry.
Industrial Inventory: approximately 60 million square feet
Southeast Edmonton: This well diversified submarket features light industrial and flex spaces, technology and R&D zones, and manufacturing clusters with a growing distribution and transportation segment. Easy accessibility to the eastern refineries, northern highway corridors, and southern distribution and air cargo nodes make this a desirable quadrant for the large residential base inhabiting Edmonton’s south.
Industrial Inventory: approximately 55 million square feet
Nisku/Leduc: Located in Leduc County and within the City of Leduc, this submarket for many years formed the foundation for the energy service, manufacturing and distribution sectors catering to the province’s northern engines. Today, this submarket remains a strong home base for industrial businesses directly, or indirectly, related to the oil and gas market, but with a newfound identity as a major distribution hub for large format big box names in north Nisku. Neighbouring the City of Edmonton to the south, and the Edmonton International Airport to the east, this is becoming a strategic location for many industrial businesses in the region.
Industrial Inventory: approximately 23 million square feet
Acheson: Located in Parkland County to the west of Edmonton, this industrial park is one of the fastest growing in the region, catering to a diversified mix of owner/operators in privately owned assets, to large manufacturers and household name distributors. Solid transportation networks, rail connectivity and the region’s second lowest non-residential mill rate make this an enticing base for industrial businesses. Multiple large land development projects are underway to provide much needed supply to a ~1% vacant submarket.
Industrial Inventory: approximately 11 million square feet
Sherwood Park: Located in Strathcona County to the east of Edmonton, this is a tight industrial market occupied by light and medium industrial businesses within the City, and larger refinery and heavy industrial projects in the broader County. The County offers both rail providers, high load corridors, ample energy infrastructure, and extensive land opportunities. The City provides a strong residential base and easy accessibility to the City of Edmonton while offering a preferential mill rate.
Industrial Inventory: approximately 6 million square feet
St. Albert: An up and coming industrial area, St. Albert has seen over 1.4 million square feet of industrial real estate developed and leased up in the past 4 years, with over 700,000 square feet recently coming online or beginning construction in 2024. Furthermore, it is in planning for a new 600-acre industrial park with rail access (Lakeview), expected to begin site work in Q4 2024. Access to labour, urban amenities and regional services differentiate this area, in addition to close proximity to transportation corridors and the City of Edmonton.
Fort Saskatchewan & Alberta Industrial Heartland (Sturgeon County): Known for its heavy industrial landscape, catoring to large-scale oil, gas, and energy projects that fuel the province and country. This submarket is serviced by both CN and CPKC rail lines, and is the doorway to the northern energy markets including Fort McMurray and Grande Prairie.
Edmonton Region Non-Residential Mill Rate Comparison
Top Industries:
Traditional and Clean Energy: Edmonton's industrial sector has historically been closely tied to the oil and gas industry, with many companies directly involved in exploration, extraction, and refining operations, or supplementally involved through manufacturing, servicing and distributing operations. One of the most admirable features of this industry is the innovation and adaptability it shows to new market trends and fluctuations. To this end, many companies have traversed into alternate forms of energy production, storage and distribution in areas such as hydrogen, biofuels, carbon capture, solar, wind and nuclear.
Logistics and Transportation: The city's strategic location as a transportation hub makes it ideal for logistics and transportation companies who can take advantage of both CN and CPKC rail lines and intermodal yards, robust highway infrastructure connecting directly to the CANAMEX corridor, and the largest air cargo facility by land mass in Canada with over $1.5 billion in on-airport development and over $300 million in new cargo development announced. Furthermore, Edmonton International Airport provides a less congested, more efficient, inland port to asian exporters, offering the full suite of necessary services to get goods where they need to be.
Manufacturing: Edmonton has always been a large player in the manufacturing industry for western Canada, with world-renowned expertise and innovation in energy related operations. However, due to the City’s robust and highly educated skilled trade sector, the manufacturing industry is excelling in attracting new players to the market encompassing industries such as machinery, equipment, agritech and food processing. The emphasis on nearshoring and onshoring manufacturing activites from Asia back to North America has found solid footing in the Edmonton Region due to the many intrinsic features of our market that are ingrained to support these initiatives.
Technology and Innovation: As Edmonton continues to diversify its economy, there is a burgeoning tech scene specializing in software development, life sciences, advanced manufacturing and machine learning. The University of Alberta ranks 3rd in the world for Artificial Intelligence research, and is home to Google Deep Mind’s first international location, attracting the some of the world’s brightest to Edmonton. This identity of innovation runs through the Edmonton ecosystem, and has lead to innumerable trajectory changing developments across all industries.
Factors Influencing Returns and Pricing:
Armed with a bit more information on the broader Edmonton industrial market, the next question leads into achievable returns and pricing in this market. Compared to markets like Toronto and Vancouver, where industrial real estate prices are soaring largely due to massively constrained supply, Edmonton offers more affordable and attractive real estate opportunities for investors and owner/users alike. The economy is diversified and affordable, the location is strategic, serving as a transportation and logistics hub for Western Canada, and the market is stable, resilient and primed for growth.
Having said all this, and understanding that investment returns are both point in time, and consumer driven, it’s impossible to outline achievable pricing metrics for ALL industrial real estate opportunities in Edmonton. Each sale is unique to the asset fundamentals, parties involved, and macroeconomic factors of the day. What I can say from a 10,000 foot view is Edmonton industrial cap rates typically range from 6% to 8%; Edmonton industrial (serviced) land generally trades between $500,000 - $1,000,000 per acre; and Edmonton industrial buildings predominantly sell between $100 - $200 PSF. If you are searching for more refined, specific values at the time of reading this, please reach out for an in depth market and asset conversation.
Investing in Edmonton's industrial real estate market offers an array of opportunities for savvy investors. With its diverse submarkets, thriving industries, and strategic advantages, Edmonton stands out as a compelling destination for those seeking to capitalize on the dynamic landscape of industrial real estate in Canada and offers attractive returns and pricing relative to other Canadian markets. Whether you're a seasoned investor, an operational industrial business, or exploring new avenues for investment, Edmonton's industrial sector offers promising prospects for growth and profitability.
