As the city’s first big-city sized towers begin to throw shadows across downtown Edmonton, ‘For Lease’ signs hang prominently in shop windows on 104 Street, on Jasper Avenue on 99 Street and within City Centre Mall. To an untrained eye, on some streets at least, it can appear that more spaces are empty than occupied. But is downtown’s retail scene actually struggling? Or is it, as some experts say, in a “holding pattern” as we wait for buildings and an expected increase in people coming to fill them?
First, let’s reflect on the changes to retail and business space in downtown and Oliver. When it comes to retail, several new developments have joined the market in the last couple of years, such as the Kelly Ramsey tower and the Brewery District. The big-box Brewery development alone brought 20,000 square-feet of retail space to Oliver in 2016, vacuuming up blue-chip tenants like TD Canada Trust from street-side retail spots on Jasper Avenue. Meanwhile, the Ice District will add a staggering 300,000-square-feet of fresh retail space when it comes online in January 2019 (for comparison, City Centre Mall, across the street, already with several empty retail bays, already offers more than 725,000 square feet). All the while, numerous new retail bays in the podium of the Fox Two tower and Kelly Ramsey are still up for lease. A few are taken, but definitely not all.
The story for office space is similar. With 18-million square-feet of total space downtown and a 16 percent vacancy rate, Edmonton now has almost 2.9-million square feet sitting empty and waiting for business tenants. That’s likely to mushroom when the Stantec Tower in the Ice District opens its doors and offers more than 20 floors to office tenants. Indeed, commercial real-estate brokerage Cushman & Wakefield estimates Edmonton’s office vacancy will hit 18 per cent by the end of 2018. For comparison, Edmonton’s office-vacancy rate is less than recession-struck Calgary’s, at 27 percent, but significantly higher than Toronto’s (four percent) or Vancouver’s (six percent).
Developments have appeared just as Alberta’s economy left for a vacation in the south. And space needs for offices are also shrinking as the years tick by. In 2017, for example, North American offices average 151-square-feet per employee, down from 225-square-feet in 2010, according to real estate data provider CoreNet Global. Meanwhile, online shopping and changes in consumer spending patterns are disrupting old-school retail.
But experts say, despite appearances, all is fine. And they point to what they say are two very different markets for retail and office space, which, they add, are in two very different states right now, as well as the future demand these new developments will incentivize.
Are they right?
Jamie Topham, a partner with Cushman & Wakefield, estimates downtown Edmonton currently has a 5.5 percent vacancy rate for retail space. That’s nearly two points higher than the city average, at about 3.8 percent, but Topham says downtown retail is not in trouble. “If there’s an exodus [from retail in the core], I sure haven’t seen it,” he says. Instead, Topham says, the core is in “a holding pattern” that isn’t permanent. “Downtown is going to be really shaped and reformed after the Ice District gets fully up and going,” he says. “You’re going to see more demand from specialty leases from local businesses after the Ice District, when it’s established and bringing annual traffic counts. I think it’s going to get stronger and healthier as the arena district comes to shape, and other developers and landlords around the arena district amend their plans, once they fully understand the traffc this new development is bringing.” Optimism aside, it’s still unclear who will fill the 300,000-square-feet in the retail portion of the Ice District. So far, Ice District has confirmed a Cineplex UltraAVX and VIP Cinemas as anchor tenants, along with a JW Marriott hotel, a food court in the Stantec Tower, a Rexall drugstore and the already-opened casino beside Rogers Place — as well as an as-yet-unnamed grocery store and fitness centre.
The situation at street level is mirrored above in the offices. Vacancy rates there have more than doubled over the past two years but many suggest that’s due to new supply and businesses closing, rather than tenants vacating for other locations. Karnie Vertz, a principal with Avison Young’s office leasing and sales team,
says it’s nonetheless a good time to be an office tenant. “We’re not seeing any significant growth [in demand] in the downtown market,” he says, “though I think you are seeing some professional companies and some growth in the IT sectors [and] artificial intelligence.”
And just as with retail, the first glances that suggest struggles may be wrong, according to experts. Indeed, some say downtown’s high vacancy rates might actually be good news, as the vacancies and new investment mean there’s an opportunity for employers who may have never considered the area previously to come downtown.
Jimmy Shewchuk is one of them. Shewchuk is a business development manager with Edmonton Economic Development Corporation, and says many new people are starting to “dip their toes” into downtown. As he says, the usual counter arguments – it’s too expensive, there’s no parking – don’t really hold up anymore. “You really see people’s eyes light up when you talk to them about talent retention and being downtown, and how much easier it is. If that’s the talent you’re looking for – young, energetic, smart talent – it’s much easier downtown as opposed to if you’re somewhere else.” Employees increasingly don’t want to work in an industrial park where it’s a 10-minute drive just to get a mediocre sandwich at lunch, he says.
The biggest shift is in car-commuting. “Really the biggest ‘Ah-ha’ moment that we have all the time is talking to [businesses] about parking,” Shewchuk says. He recalls a recent EEDC client who thought they needed well more than 30 parking stalls, based on a survey carried out several years earlier. But when they conducted the survey again recently, the number was actually 11. “It’s that point of clarity, of ‘Oh wait, our talent isn’t driving to work anymore — they’re taking public transit, they’re biking here, they’re walking to work because they live downtown now, so we don’t need that [parking] quite as much.’”
There have been some recent good-news stories to bolster the concreteness of this narrative, too. Chief among them is BioWare, Edmonton’s superstar videogame development company, which announced in November that it will relocate its more than 800 employees from its current south-side location on Calgary Trail to three floors of the Epcor Tower in late 2018 or early 2019, and occupy some 75,000 square feet of space. “We’re thrilled to be moving into a modern, state-of-the art facility and live in a space that empowers and inspires us to do our best work every day,” said BioWare General Manager Casey Hudson, in a news release.
Just a couple of weeks after this announcement, DynaLife announced it had signed a new lease for its current downtown location, in Manulife 2, which will keep its 700 health-lab workers in the core until 2022. Downtown champions celebrated this as welcome news. Still, shortly afterwards, the news was followed by an announcement that the provincial government is funding a new “superlab” location, at the University of Alberta’s south campus, meaning those DynaLife employees will relocate out of downtown in four years.
Another wrinkle complicating a clear answer on the state of things downtown is that 2018 should also see an increase in smaller businesses popping up — if even only for a few days, weeks or months at a time. That’s thanks to the city’s recent decision to join This Open Space, which EEDC recommended. The platform follows an Airbnb model, where prospective tenants can search for space downtown to occupy for shorter periods of time. The hope is that This Open Space will allow businesses to enter the downtown market to test ideas and products without the usual three- or five-year lease commitments.
PERHAPS THE HARDEST SIDE OF THE DOWNTOWN real-estate story for many to understand is building ownership. Experts suggest the reason there are so many aging, dated office buildings downtown — and why many storefronts and retail spaces sit empty within them — could be that the owners aren’t Edmontonians. In fact, they aren’t even people, really: many downtown buildings are owned by large institutional investors, like investment fund trusts or REITs.
“The guy that owns the office tower isn’t the person that lives in a cul-de-sac down the street,” Shewchuk says. “They’re not local owners.” Instead, the buildings and what’s in them are line numbers on a portfolio, he says. “So, it becomes, ‘Is it performing or is it not?’ No one’s walking by and saying, ‘There’s a couple of paint chips, we really need to fix that.’”
IN THE PAST, THIS MATTERED LITTLE AS LARGER (and often multinational) property owners such as REITs rode out lows rather than downgrade their pricing or invest in upkeep that appeared unnecessary. “We’ve had the luxury of being lazy for a long time,” Shewchuk says. “There’s a lot of space that hasn’t been upgraded because it hasn’t had to. I don’t necessarily blame those property owners for not, because it was full, or close to full for a long time.”
But now that things aren’t full, and new supply is arriving, some see opportunity rather than trouble. The arrival of new, highly desirable office and retail spaces on the downtown market is forcing some established landlords to change this indifferent approach. Experts say there has been a new emphasis put on quality, with increased investment in older buildings, more creative lease deals to entice businesses to set up shop.
And there has even been full overhauls of a building’s purpose, such as office conversions that transform old office space into something else, usually residential. EEDC has set up a task force to study these scenarios, which have already started to happen: in May of last year, Calgary firm Strategic Group announced that they will be converting Harley Court, a 1970s-era office tower located on 111 Street and 100 Avenue, to a mix of one- and two-bedroom residential suites.
It will be years before the effects of the Ice District can be measured by anything other than speculation. The company itself is bullish, however, boasting of nearly 2,000 new residents to its own 25-acre development and of 13,000 within a 10-minute walk, along with 75,000 daily employees.
BUT UNTIL THE STREETS ARE CRAWLING WITH PEOPLE and Edmonton is attracting new business investment outside of building office buildings, tenants who decide to stake a claim in the new downtown are in many ways hedging their bets that it’s sustainable to operate here over the long term.
To Shewchuk, homegrown growth potential is key. We may have failed to lure Amazon here to build its second headquarters, but we did lure BioWare, as well as Jobber, Yardstick and others. “Edmonton is a city that has always been built on entrepreneurship,” he says. “Opening the doors and making downtown very accessible to those two-, three-person companies that, one day, become 300, 400 person companies, would be great for us. We’ve never been a city that has done well chasing the whale. We need to focus on what’s always worked for us, and that’s creating the environment for a city that’s been built on entrepreneurship.”