Current single tenant vs. multi tenant vacancy rates, this might surprise you.
Leduc Business Park, Alberta
It's safe to say that we are finally coming out of the trough of this current market cycle. Companies are feeling more optimistic with the current direction industry is trending, but more than that, businesses have made the necessary decisions to improve their efficiency, and ultimately operate in the current market. There is an understanding now of what the new norm is, and this certainty is allowing businesses to plan forward and operate effectively. This directly relates to the commercial real estate industry because when businesses are confident and able to project years out, it allows them to make real estate decisions today! This was the challenge with the past two years as there was no certainty, no ability to plan, so companies put off their large facility decisions as long as they could. Not only was our oil & gas market taking a pummeling, but our political climates were changing both on a provincial and federal level. The best business decision was to not make a business decision until those highly influential factors played out.
Fast forward to the fourth quarter of 2017 and we are seeing big steps forward across a variety of industry lines. Oil surpassing $50 per barrel in September didn't hurt this (cautious) optimism, no doubt! But with the bird's eye perspective of eating, sleeping and breathing the commercial real estate market, we have been witnessing something interesting happening within our industrial market, particularly between the multi-tenant and single-tenant product classes.
Zeroing on the Nisku/Leduc (primarily energy related) submarket located just south of Edmonton, we're able to get a clear look at some of the challenges facing the multi-tenant market right now. We have been seeing gradual positive absorption of property in the single tenant market here, and conversely, a drastic increase in vacancy rates in multi-tenant product. This is likely because five to ten years ago, there was not enough product in Nisku/Leduc for the steadily increasing demands of the energy market, so companies were forced to take multi-tenant property to accommodate their steep growth, even if it wasn't their first choice. Today, the businesses that have weathered the storm are now able to shift laterally into the single tenant properties they prefer. Unfortunately, not everyone survived this downtown, and many made consolidations and trims to shore up their expenses to the new norm. This created an increase in the availability of single tenant free-standing product, for businesses to shift into, ultimately leaving a glut of vacant multi-tenant property. The multi-tenant properties that are being absorbed are differentiated by having unique features such as yard space, or by being the cheapest option on the market.
Cushman & Wakefield Edmonton's Research Analyst, Keith Hill, dug deeper into our Nisku market data encompassing 495 properties to verify these findings, and what we found is represented in the information below:
Single Tenant
- Universe: 9,255,536 sf
- Vacancy (sf): 729,133 sf
- Vacancy (%): 7.9%
Multi-Tenant
- Universe: 1,067,917 sf
- Vacancy (sf): 347,544 sf
- Vacancy (%): 32.5%
Although the multi-tenant market in Nisku and Leduc is drastically smaller than the single tenant market, the numbers shown above illustrate the huge differences between the product classes. Furthermore, this data does not include shadow opportunities - those that are not listed - and our observations indicate that this vacancy number could actually be even higher for multi-tenant properties in this market...
Nisku vacancy rates drastically differ depending on the product
Every sub-market in and around Edmonton has its own industry characteristics, but from my experience on the ground, I would wager that this finding can be extrapolated outwards to many if not most industrial zones in our greater market. The positive note to this post though is that business growth and optimism is starting to trend upwards in Edmonton and surrounding area, especially in the owner-user, single tenant industrial markets.
That, and we have a beautiful, COMPLETED Walterdale Bridge! Yahoo!!
