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What’s Next | Capital Markets 2019 Forecast (PART 1)

We have managed to come through the downturn because of major infrastructure spending and the development activity in the downtown core. What’s next?

What’s Next 2019 – PART 1 (PDF)

 

The Edmonton real estate market came out of a twenty year lull in the mid-2000’s on the back of unprecedented capital spending in the energy and public sectors. This catch-up phase led to incredible value growth in the commercial real estate sector and cushioned the area from the recessions of 2008 and 2015.

As we look forward, the latest economic trends in Edmonton indicate that employment in the Edmonton Metro area has stabilized and begun to expand in the second and third quarter of 2018. It was expected that Real GDP would increase again by 2.7% in 2019. However, with the curtailment of oil production late in the year aimed at reducing the price differential to WTI, several groups have moderated their opinions from this November forecast. It seems likely that unless there is a shift in the pricing differential strategy, GDP may have to be revised downward into the 2.0% range.

Over the past twelve months, there has been growth in high wage sectors and the sector is beginning to recover from the losses experienced in 2015. We believe this is a significant indicator of the state of the economy since most of the job recovery over the preceding two years was based upon part time low wage job growth. It is also anticipated that inflation will slow which will preserve the real value of incomes and wage growth that is being experienced by the workforce.

Although there has been a reduction of oil production, Alberta still has to find a way to increase oil transport volume in order to access world markets and shrink the differential to WTI pricing based upon industry fundamentals rather than market intervention. Over the next few years, Alberta’s downside risk continues to be caused by Energy sector challenges.

Overall housing starts are flat and will likely not increase until the inventory of existing housing is depleted and velocity in the market returns. We anticipate this imbalance will correct itself over the next two years if population growth increases.

As mentioned previously, manufacturing sales are at a four year high and are up 8.5% through the first three quarters of 2018 (Alberta Finance). There have also been several major build-to-suits announced/recently completed (Amazon – 1,000,000 SF and Ford – 400,000 SF) in the industrial sector that are located outside of Edmonton in Leduc County.

The office sector is experiencing an interesting change in dynamics as there is a flight to quality as tenants are looking at newer product with greater efficiencies and amenities. This has resulted in increased vacancy in older product and the increased conversion activity in the downtown core and surrounding areas. The suburban trend is being driven by a different dynamic as the spike in the Suburban vacancy rates is primarily due to new product coming on line.

Retail sales are still healthy due to stable wage rates but there is also evidence that they might be propped up due to increasing prices. An interesting trend over the past year is that major purchases for things such as motor vehicles are off from previous years but expenditures in food and beverage continue to be healthy. This is perhaps an indication that although there is discretionary income in the market place, people are still not confident in the overall recovery that they are willing to spend for large ticket items.

 

For more information, contact Cushman & Wakefield Edmonton Investment Division.

 

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