In March, a single firm sold four downtown office towers facing vacancy problems at steep discounts in Alberta’s capital city.
As new towers are built in Edmonton’s core — in part, thanks to ICE District and related development — some older office buildings have uncertain futures.
“We have a thin office market in Edmonton,” Brian Gettel of real estate research and database firm The Network, said. “The new buildings coming in have really hurt the old Class A buildings.”
Last month, HSBC Bank Place on 101 Street sold for $35 million. Enbridge Place on 104 Street sold for $25 million. The HSBC building on 106 Street went for just over $12 million. The Milner Building just off Jasper Avenue at 104 Street sold for $7.5 million.
Combined, the four buildings dropped in value by more than $160 million in less than a decade.
“This is just a case of ‘These guys decided to get out of the market because they know it’s going to be tough sledding for quite a while,'” Gettel said.
“All of these buildings have issues with high vacancy coming up,” he explained. “It was going to make it very difficult to maintain any kind of cash flow, so they made the decision to basically just get out.”
Two of the buildings were purchased by the Alberta government’s investment firm AIMCo, which plans to use the space themselves.
The other two buildings were bought by an Edmonton investor. The president of BOMA (Building Owners and Managers Association) in Edmonton, Percy Woods, believes that shows a level of confidence.
“The purchaser of the buildings is somebody that is prepared to reinvest in them and bring them back up to a place where they’d continue to be competitive,” Woods said.
The influx of newer towers means the older ones will have to do some work to stay competitive.
The new Stantec Tower under construction will top 60 storeys, and city staff have moved into their new tower, while the Enbridge Centre (the old Kelly Ramsey Building) is drawing rave reviews.
“This creates opportunities for landlords to modernize that space — better work spaces for everybody — a chance to do some of the environmental things they’d like to do,” Woods said.
He suggests those changes could even see old office buildings transformed for other uses.
“Take some of the office space out of the marketplace but create living spaces or other kinds of spaces.”
He believes the ICE District and other downtown developments have absolutely shifted Edmonton’s landscape “for the better.”
At first blush, the numbers seem shocking, however Coun. Scott McKeen said we shouldn’t be surprised at what’s gone on.
“I don’t think it’s a bad news story,” McKeen said. “I think in fact that happens all of the time in business. Businesses have sort of tapped out the infrastructure they’re in, they sell it at a lower rate. Somebody comes in and because they got it at a lower rate they can invest some money in to bring it up to modern spec.”
– with files from Scott Johnston, 630 CHED