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Record heights, record prices: Skyscraper for sale in Edmonton’s new downtown

Edmonton City Centre is a 727,167 square foot regional shopping centre located in the downtown core.

Oxford Properties

It hasn't even opened its doors yet, but Edmonton's Stantec Tower is up for sale.

The 60-plus-storey skyscraper, expected to be the tallest building in Western Canada, is one of three key pieces of commercial real estate to hit the market in the city's revitalized downtown core since the beginning of the year.

Stantec Tower, along with Edmonton Tower -- one of the city's newest office buildings -- and a shopping mall have recently been put on the block, The Globe and Mail has learned.

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The two towers, privately held by Katz Group and ONE Properties, could be sold as a pair for about $1-billion or separately for approximately $500-million each, according to Royal Bank of Canada, which is running the sales process along with CBRE real estate firm.

There is "strong interest," said Gary Morassutti, managing director of RBC's capital markets real estate group.

The shopping centre up for grabs is Edmonton City Centre and the sale process is being run by CBRE, according to people familiar with the matter. The price tag is not known. The mall is jointly owned by Oxford Properties, the real estate investment unit of the pension fund OMERS, and the Canada Pension Plan Investment Board. The companies separately said they do not comment on market speculation. CBRE declined to comment.

It is an interesting time for Edmonton's commercial real estate market.

Over the past few years, one of the country's largest office-building owners, Dream Office Real Estate Investment Trust, wrote down some of its Alberta portfolio and started exiting the province because of weak market conditions. Last year, Dream got rid of about a dozen buildings in Edmonton and Calgary. At the same time, Edmonton's downtown was transforming with a new hockey arena for the Edmonton Oilers, as well as new office towers and retail.

But even though Edmonton Tower and Stantec Tower are located in the popular area, the $1-billion price tag is a staggering amount for Edmonton.

"The price point is going to be hard for people to look at Edmonton and say that's what the price in Edmonton is," said Howard McCann, Cushman & Wakefield's Edmonton broker. "It is almost like Vancouver pricing in Edmonton."

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One of the biggest deals in Edmonton was in 2012 during the oil boom, when 50 per cent of a mall was sold for $265-million, according to data from Cushman & Wakefield, and last year's most lucrative transaction was valued at $191-million for an apartment complex.

Mr. McCann said institutional investors view Vancouver and Toronto as the gateway cities or big urban centres and are more willing to slap down $1-billion for commercial real estate. "Edmonton is not in the same league as Vancouver and Toronto that way. It's not a negative comment. Investor expectation of spending a billion dollars in Edmonton is a difficult concept," he said.

Edmonton was relatively insulated from the oil collapse due to the redevelopment of its downtown, now called the Ice District because of the hockey arena and the city's cold climate. Along with new office towers, a hotel is being built and condos will be added on the upper part of the Stantec Tower. Brookline PR, which represents the Ice District, declined to comment on the office tower sales.

But now, as Alberta is recovering from the oil crash, Edmonton may face challenges because there are fewer infrastructure projects and older buildings are being vacated for the new offices such as Edmonton Tower and the Stantec.

"The problem is that a lot of the commercial space is coming on the market when there isn't demand for office," said John Rose, the city's chief economist.

The development of the Ice District, along with a new bridge and public transportation, started around the time oil prices started to plunge. The lower price eliminated thousands of jobs in Alberta but helped free up labour for Edmonton's infrastructure projects and insulated the city from the oil slump.

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"I couldn't have asked for better timing," Mr. Rose said of the development coinciding with the oil-price shock.

Also, because Edmonton is a government town, it did not get hit as hard as Calgary. The office vacancy rate in Edmonton's downtown core stayed below 13 per cent for the worst parts of the oil downturn.

But the new office space has become a headache for older buildings, with tenants fleeing to the newer buildings. The vacancy rate hit 15.5 per cent at the end of last year, according to Cushman & Wakefield, the highest level in years.

Edmonton Tower, with 27 storeys, is occupied with mostly government employees. About one-third of the Stantec Tower will be occupied by employees from the Stantec engineering firm when it opens its doors later this year.

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