Edmonton's downtown is poised for its moment in the spotlight.
EDMONTON ECONOMIC DEVELOPMENT
FEB 21, 2018
Sharp glass towers are rising in the seeming blink of an eye in the Ice District near the shiny new Rogers Place arena and a new generation of city-living lovers are driving demand for condos smack in the centre of the city.
At the same time the city core has more empty land available for new buildings than many other Canadian cities. But a recent slowdown in Alberta's energy economy has left some office towers and older buildings with plenty of vacant space ripe for mixed use and innovative repurposing..
City boosters and developers draw comparisons between Edmonton's downtown now and Toronto and Vancouver cores 15 to 20 years ago in terms of the opportunities available and what's to come as the city densifies.
Edmonton's downtown has the natural advantage of its location bordering the North Saskatchewan River valley, North America's largest urban park. The legislature building and heart of the provincial government are in the downtown area. Rogers Place brings thousands downtown for hockey and concerts. A thriving restaurant scene, the Winspear concert hall, Citadel Theatre, Edmonton Public Library, Art Gallery of Alberta and the Royal Alberta Museum enliven the arts district. Macewan University and Norquest College bring close to 30,000 students into the downtown daily and the University of Alberta is only one stop away on Light Rail Transit.
"There’s a real opportunity right now. We’ve got the infrastructure in place … an employment base; an entertainment base; a cultural base; a transit base.... We have all the elements. We’re working on making it more liveable with parks and other amenities. Still we’re undervalued, underrated and under appreciated compared to where we could be and where we’re trending to," says Ian O'Donnell, executive director of the Downtown Business Association.
But the downtown's potential is starting to be recognized.
EXCITEMENT IS GROWING
Developers are starting to snap up downtown properties. Regency Developments moved quickly to buy a prime property in the very heart of the downtown in spring 2017. The BMO building at 101 street and 102 avenue wasn't suitable for repurposing so Regency is demolishing the it and plans to work fast on an underground parkade. It will then decide on what uses will be included in a new tower.
Regency COO Raj Dhunna says the firm is considering a mixed use development of up to 45 or 50 storeys, including a hotel and condominiums.
Regency has been building on the outskirts of the core in recent years, big condo towers like The Pearl, at Jasper Avenue at 119 street and the Emerald, set for construction on Jasper Avenue at 113 street, but the firm couldn't resist the prime location in the centre of the downtown when the BMO site came available. The downtown is a big draw now, he says.
“Just in the past decade we’ve seen a seismic shift in perception. There’s tonnes more things to do, tonnes more restaurant, the arena, public and private investment that’s continued to really make out downtown really different than it used to be," Dhunna says.
Beljan Development, another firm that has done innovative repurposing of older and historic properties in other parts of the city, has also turned its sites to downtown, with two projects underway. The firm will repurpose an old YMCA building on 102A Avenue as a rental apartment, retail and fitness project. And it is also doing a refit for restaurant and boutique offices of the historic Metals Building on 104th Street.
Chris Dulaba of Beljan credits some of the attraction of the core to Ice District, the 25-acre planned development around Rogers Arena that is bristling with construction cranes and impressive towers.
“The reality is the arena district — the perception of what that has done in terms of creating new business opportunities — is the biggest game changer," Dulaba says. "The downtown arena wasn’t the panacea in terms of curing the downtown but it was a major boost. I think that increased attention in terms of investors who had never considered downtown.”
And the type of money that is coming into the downtown is changing.
INVESTMENT IS BUILDING
"A building goes up for sale now in Edmonton there’s an awful lot of interest. People want to be here and when you’re talking about a building up for sale, this isn’t a guy who checks his bank account. It’s international money - pension funds. This is smart money. And they want to be in Edmonton," says Percy Woods, president of the Building Owner and Managers Association of Edmonton.
Cory Wosnack, principal and managing director for Avison Young Real Estate in Edmonton says international investors are turning their attention to Edmonton's downtown as Toronto and Vancouver become too expensive.
Those investors are finding residential development at a third of the price for equivalent quality compared to Vancouver, says Wosnack.
He says more people, particularly young professionals, help set the foundation for a buoyant real estate market. These investors are very comfortable with high-rise residential development, Wosnack says. He predicts they won't be taking a direct role in purchasing buildings but are more likely to look for partnerships.
“I expect we are going to see investing in partnership opportunities with regional real estate owners.… More investors now look at this as a passive opportunity to participate but rely on the local parentships of their co-investors to execute," he says.
Edmonton Economic Development's Jimmy Shewchuk says the since the completion of Rogers Place, the city has been on a wider radar, including "investors from Asia looking at Edmonton and saying 'What are the opportunities? We want to park some money here and do an iconic development in downtown Edmonton.' "
Patrick Lamoureux, a business agent with Lams and Associates who works with international investors, says Edmonton still takes a back seat to Vancouver and Toronto with the type of investors he works with. It will take agents and those seeking investment going directly to those investors to educate them about the city to get things moving, he suggests.
"I think there’s chatter behind the scenes amongst large local developers but there is starting to be some momentum with international investors looking for key asset plays.
"I don’t think we’re quite there yet," says Lamoureux. "Is it coming? Yeah i think it is. I think you’ll see greater movement the middle and last half of 2018 and you’ll see something more favourable in ’19."
Lamoureux agrees the international investors will be looking for joint ventures and downtown assets will be their focus.
WE'VE GOT VACANT LAND
Edmonton still has undeveloped land, much of it in parking lots, in the core.
Four years ago, the last time an inventory was conducted, the central downtown, from 96th Street to 109th Street, had 17 vacant lots with 148,803 square feet of land. On top of that more than 30 lots in the Quarters district east of 96th Street were also vacant. Some of those vacant spaces have been taken up by new construction in the intervening years, particularly in Ice District, but many lots still remain under-used as surface parking.
"In the 90s you had a choice to pay taxes for your warehouse or knock it down and make a parking lot so you’ve got revenue," says Woods. "Dirt downtown in a growing city … that’s an opportunity.”
Ian O'Donnell at the Downtown Business Association says he would like to see "more complete streets," without the large empty lots. The situation in Edmonton is similar to Toronto or Vancouver 25 years ago, he says.
“We still have some holes to fill in our urban fabric.”
Wosnack adds a word of caution on the vacant land issue. He stresses those lots are not a liability.
"It’s all about patience. … if we are too impatient and try to rush development we are going to see poor development with inexpensive materials and uninspiring architecture.”
VACANT SPACE IN EXISTING BUILDINGS
While Alberta has been hit with high office vacancy rates because of the energy downturn, the office market glass is half full, BOMA's Percy Woods says.
"Space is an opportunity. I know landlords think it's a negative, but it's an opportunity and if you get the right person in there and somebody wants to be their neighbour, that's how things grow," he says.
Three full floors of new space in the Epcor Tower on the north edge of downtown, for instance, lured game developer BioWare, a division of Electronic Arts, into the core from its rambling suburban digs. Tax software firm Intuit also has its offices in the Epcor Tower.
Woods is excited about the creative energy BioWare's staff will bring to downtown. "You're not going to see many ties in that group getting in the elevators."
The office vacancy rate has been hovering close to 20 per cent in recent months, still under the 27 per cent Calgary hit in 2017, but well above the five and four per cent respectively in Vancouver and Toronto.
Building owners need to be open to changing space to meet the needs of some more nonconventional tenants, suggests Woods. He says the Silicon Valley-style open space with pillars and concrete floors and no cubicle or offices is popular in Vancouver and Toronto and has potential in Edmonton now that some B and C class towers downtown are facing.
“Certainly when your building isn’t leased up your attitude to what’s good and what’s bad changes," says Woods. “If somebody came up and said 'I want a floor and I want you to just blow it out,' I'm not sure there's anybody that'd say no."
While the vacancy situation has been challenging, the lease rates have stayed quite stable, say analysts, which indicates long term strategy on the part of the building owners.
Still, in comparison to other cities, lease rates are reasonable. Recent Avison Young figures show Triple A space asking $35 per square foot (this only includes three new downtown towers, the Epcor Tower, Enbridge Centre and Edmonton Tower). A class buildings are asking $20.75; B class $15.25. A class buildings in the government district are asking $16.75. In Vancouver and Toronto A class buildings have been asking net rent rates in the $30 range, according to CBRE real estate reports.
The downtown market for office buildings has a diversity of stock — from B and C class buildings to triple A — and it is changing hands at several price points. In 2017 notable transactions included 9888 Jasper which sold for more than $60 million, about $340 per sq. ft.; HSBC Place, which sold for $35 million, or $108 per sq ft. and Enbridge Place which sold for $25 million or $95 per sq. ft.
In the third quarter of 2017, Edmonton had 600,000 square feet of downtown office space under construction while Calgary had 430,000, according to City of Calgary economic development figures.
MORE PEOPLE LIVING DOWNTOWN
Boosters want to see more residential and multiuse development in the core, buildng on a city that already has a good start thanks to urban planning and happenstance.
O'Donnell suggests the pattern of slow development downtown, relative to, for instance, Calgary, has resulted in a vibrant mix. There are about 14,000 people living in the core now.
“The thing with Edmonton is we don’t have the conglomeration of office towers in the core so we’ve had the opportunity to put some more mixed use and residential spread throughout the core which I think, when we look back in another five, 10 years, really will be beneficial to activating many blocks in the core,” O'Donnell says.
Downtown has the capacity to take many more residents, says David Sanche, co-CEO of Westrich Pacific.
Westrich has two new condo towers on 102nd Street in the downtown, the 33-storey Ultima, 100 per cent full and the 43-floor Encore, which has sold 85 per cent of its units.
"It’s dramatically under-crowded," says Sanche. "You go to a movie — you’re sitting in a theatre with 10 other people. It’s never crowded. There’s just so many options."
Sanche thinks one reason there is slow absorption of more central housing options is Edmonton's suburban mentality of a big truck and a house with a yard. Westrich's Ultima condo designed with that bias to attract clients.
"We wanted to create a true feeling of an actual yard. You want to walk your dog. You want to sit at a fire pit and roast marshmallows. You want to have a barbecue. You want to sit in a hot tub. You want to have a true yard without the yard work. So we did that on a midtown amenity on the 10th floor — the sky garden. It’s overlooking Ice District, west to the treetops, south to the river valley, in the middle of the tower."
Most of the new high-rise residential construction in the downtown has been aimed at relatively affluent young professionals and older downsizing empty nesters. O'Donnell and Shewchuk said more student housing is needed. O'Donnell also thinks more family housing is needed.
Beljan's refit of the old YMCA building on 102A Avenue, which will be renamed Williams Hall after John Williams the founder of the YMCA, will be targeted at renters in their 20s and early 30s, in school or just out of school and starting their professional careers. Dulaba says Beljan hopes to keep the rental units in the $900 to $1,000 per month range.
These type of renters "don't have a car, don't need a car, don't want a car," Dulaba says. So the developer is supplying a bike parkade instead of a car parkade for the building.
MIXED USE AND NEW USE FOR OLDER BUILDINGS
Most new developments in the core have some element of mixed use. On 104th Street the condo towers built in the 1990s and early 2000s set the pattern with prominent street level podiums filled with boutique retail and independent restaurants.
Even hotels being built in the core now mix it up. The JW Marriott building rising in Ice District will encompass 22 floors of hotel space and 31 floors of condo residences.
With the high office vacancy levels of 2015 and 2016, Edmonton's business community turned its attention to converting office towers and underused buildings to new purposes, particularly residential.
While only limited numbers of buildings are suitable for conversion, there is some action on that front. Strategic Group is planning a conversion of the Centre West building in the government district and the Financial building in the same area has a conversion underway that will produce a mixed residential and office building.
Dulaba of Beljan, which specializes in repurposing and renovating old and sometimes historically designated buildings, admits it takes a lot of planning and effort to do a refit but there are advantages too.
"There are a lot of benefits, particularly time… if you were looking at redeveloping a project of a similar size (as the YMCA building) from the ground up, you would be looking at 15 to 18 months in construction including a basement and parkade, whereas we’re taking the building and in roughly 12 months you’ve up and running."