What western city has the fastest-growing real estate market? If you think it's Calgary, think again.
Edmonton, the City of Champions that has struggled for more than two decades to live down its "Deadmonton" image, is elbowing out Calgary as the hottest property market.
Office rents are skyrocketing, bidding wars for houses are becoming the norm and prime office space in downtown towers is getting gobbled up by companies in expansion mode.
"This is unpredicted," said Richard Corriveau, an economist for Canada Mortgage and Housing Corp. who follows the Alberta market. "We are seeing a level of growth that was essentially unfathomable just 18 months ago."
More Report on Business Stories
The average house price in the city has reached $375,412, a 52-per-cent increase from the same time last year and well above the national average. New-home prices increased 40 per cent between January of this year and last, according to Statistics Canada. Office space that was renting for less than $10 a square foot, and as low as $5, just a few years ago is now going for $25.
"There is some sticker shock," says Dave Young, managing director in the Edmonton office of real estate service firm CB Richard Ellis. "But this is still a great place to do business. People are paying the rent and staying where they are."
Mr. Young can relate. He just renewed his own space in Edmonton's Manulife Place at double the price. But he figures in a few months he'll look lucky with his new rate of about $26 a foot. "I think absolutely we'll see $30 this year in the best buildings."
Those rates, while not as high as Calgary or Toronto, represent a hockey-stick trajectory for the city. Indeed, Edmonton is showing up at the top of the heap in several 2007 forecasts for both the housing and commercial sector.
"It's going to be the pace setter for the country," predicts Sandy McNair, president of Altus InSite Real Estate Information Systems Inc., which tracks the commercial property market. Demand for office and industrial space in the city is jumping as more firms that service the oil patch use the city as a base, Mr. McNair said.
Calgary made headlines last year with its phenomenal housing boom and an office market that struggled to cope with the lowest vacancy rates on the planet. But most expect growth in prices and rents to moderate in Calgary this year. In Edmonton, the expansion is still in full swing as service firms scramble to keep up with demand and workers use their rising wages to buy bigger homes.
An influx of new residents as well as investors who figure the real estate run in Calgary has pretty much played out, are also pushing up prices, industry watchers say.
So is Edmonton the new Calgary?
"I'm not going there," says Scott Hutcheson, chief executive officer of Calgary-based Aspen Properties Ltd., one of Edmonton's largest office landlords. "There is a real rivalry between the two cities. I wouldn't put it that way."
What Mr. Hutcheson will say is that when he began buying buildings in 2003, the Edmonton market had been battered by one blow after another. First, there was the meltdown of the oil industry in the 1980s, which was followed by overbuilding in the office sector, government downsizing and the loss of some major employers.
"It became a difficult place to believe in," said Mr. Hutcheson, who was told when he began investing in the city that double-digit rents would never happen. "Ten dollars was regarded as the ceiling."
Since then, Mr. Hutcheson said the city has undergone a transformation in business confidence.
Ken Shearer, who has sold homes in the Edmonton market since the 1970s and owns five Royal LePage offices in the area, says the market is very different from Calgary and that makes comparisons difficult. Edmonton traditionally hasn't had the head offices and the big houses of Calgary, and its buyers have been conservative. But he sees that changing. The number of million-dollar homes is rising and he says the people buying them are younger, with tastes that favour "jazzy pools and hot tubs."
"We are in uncharted territory," Mr. Shearer said. "It's the oil thing."
Murray Lange, Aspen's general manager in Edmonton, cautions that the city's office market is small compared with other cities such as Toronto or Calgary and for that reason it also can change quickly. Vacancy rates for prime space ended last year at about 4.5 per cent, but it would only take a few big leases to eat up that space, he said. On the other hand, he said downtown buildings could be vulnerable to development in the suburbs.
But he expects major revitalization efforts will keep downtown space in demand and prices rising. "We've come to a turning point," he said. "It's about time. We were getting a little tired of waiting."
15