Construction is underway on more than eight million square feet of office and four million square feet of industrial space in Alberta’s two biggest cities as real estate speculators defy the effect of plunging oil prices.
Alberta crude, trading as Western Canadian Select, is now the cheapest oil in the world, trading below US$40 a barrel in mid-December, the lowest price in five years. There are projections the price could drop even lower.
Yet realtors and developers in Calgary and Edmonton, the two cities most anchored in oil stream, appear sanguine heading into 2015.
“You have to look at the big picture,” said Andrew King, a senior associate at Jones Lang LaSalle (JLL) in Calgary. “No one is pushing the panic button, except perhaps for the juniors [smaller oil and gas companies].”
A veteran Calgary real estate broker, King recalled 2009 when crude oil prices slid below US$50 a barrel.
“Larger real estate developers are looking long term,” he said.
Still, the degree of confidence is startling in a province where petroleum accounts for about a quarter of the overall economy.
There are three giant industrial plays forging ahead in Calgary, all planned to complete in the next six to eight months, none of which has pre-leased any space, according to Cushman & Wakefield.
These include WAM Development’s 413,000-square-foot StoneGate Industrial Park in the northeast; Tribal Partners Inc.’s CN Calgary Logistics Park; and Hopewell Development Corp.’s 277,400-square-foot Great Plains Business Park in the southeast.
Meanwhile, the second phase of Oxford Properties’ 200-acre Airport Business Park is underway, with the first four industrial buildings already completed. Vancouver-based Beedie Development is building the 100,000-square-foot Glenmore Trail Corporate Centre – 16% was pre-leased as of BIV’s press time.
Other projects include Cadillac Fairview’s 36-storey City Centre 1 and Centron Group’s 612,000-square-foot Place 10 and 90,000-square-foot Fountain Court Business Park.
“An air of confidence remains that ‘if you build it they will come,’” JLL stated in its most recent Calgary office market survey.
That sentiment resonates in Alberta’s capital city.
WAM Development Group and Katz Group are forging ahead with a 62-storey tower – the tallest in the city – in Edmonton’s arena district. Stantec has taken 600,000 square feet of the tower, leaving 150,000 square feet to lease up.
In suburban Edmonton, Qualico is developing 130,000 square feet of new offices in two buildings. So far, 41,000 square feet has been leased.
Other Edmonton office projects underway include a 27-storey, 600,000-square-foot tower for City of Edmonton employees in the arena district, which is scheduled to be completed next year; and the 500,000-square-foot Kelly Ramsey Building downtown.
In all, about 1.7 million square feet of office space is under construction in Edmonton, though the historical lease-up pace for office space is about 150,000 square feet per year.
“There will be a short-term, moderate slowdown in deal velocity,” said Cory Wosnack, a principal with Avison Young in Edmonton, but he said “the long-term outlook remains positive.”
The number to watch, office market analysts say, is the amount of sublease space. If major Alberta oilfield projects continue to be put on hold due to lower oil prices, engineering firms and related companies could shove more office space back onto the market.
In the past six months, Norway-based Statoil stopped work on its Corner project in the oilsands; Total SA and Suncor Energy Inc. suspended the $11 billion Joslyn oilsands project; and Royal Dutch Shell PLC stopped its Pierre River development. •
