Increased Demand in Office Space Expected in Edmonton’s South Side District

July 14, 2011 / Elizabeth Buckley, Commercial Property Analyst

The South Side district, one of Edmonton’s primary commercial growth nodes, has been seeing increased demand as it continues to recover from the office space surplus in 2008 and 2009, according to quarterly report.

Increased Demand in Office Space Expected in Edmonton’s South Side District

Avison Young’s Second Quarter 2011 Edmonton Office Market Report stated that this growing demand for office space comes while the city’s financial core is set to experience a similar surplus in what has become commonly known as the “EPCOR Effect”, whereby 543,000 square feet will be reintroduced to the marketplace through tenant relocations upon the opening of the new EPCOR Tower at Station Lands in late 2011.

Avison Young’s report was released after it announced last week the opening of its new office at Dallas, Texas.

“The South Side District has traditionally been a sought-after location for engineering firms, specifically those whose business is tied to the oil and gas sector. We are now seeing signs that these firms are back into expansion mode,” said Avison Young Principal Cory Wosnack.

“As these industries begin to grow, the need for additional staff will result in increased demand for office space.”

Many private and institutional developers, who were bullish on the Alberta economy, commissioned speculative office projects prior to the arrival of the recession in fall 2008.

A large percentage of the new projects occurred in the ever-expanding South Side market due to the benefits of its proximity to the airport, the Anthony Henday ring road and an expanding retail and amenity mix.

Due to collision of timing between the recession and the completion of new buildings, vacancy rates in South Side reached 15.7% in 2009.

“Despite the availability of existing inventory with attractive financial packages, some organizations have pursued new design-build projects at higher price points. These decisions were driven by the flexibility of design contribution, location and requirements not adequately or efficiently met by existing structures,” Avison Young stated.

To take advantage of improving conditions and compete with lower-priced older product, landlords are continuing to offer financial packages featuring numerous incentives.

“The current market conditions will not last. At the end of the second quarter, the South Side district registered a vacancy rate of 12.8%,” said Wosnack.

“By the end of the third quarter, we expect the vacancy rate to drop further to approximately 10%. As buildings begin to fill, landlords will begin to raise their price expectations and limit their incentive packages.”

Increasing activity in Northern Alberta’s oil and gas sector is expected to further increase demand for available office product as companies and other organizations seek project space, making occupancy dates critical to a user’s overall site-selection analysis.

“In combination with being strong financial alternatives, these remaining opportunities from the previous economic boom period will be strongly positioned to win deals, as they are months ahead of build-to-suit projects and ready for tenant fixturing immediately,” Wosnack added.

“That’s not to say that some tenants won’t be pursuing build-to-suit opportunities; but for the most part, there are some great opportunities for tenants to find modern space that already exists.”

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