The investment market for commercial retail properties has remained fairly strong in Alberta despite the province's economic difficulties over the past two years €“ and real estate investment experts see growing opportunities for 2017.
The shocks to the Alberta economy struck in late 2014. Oil prices began to plummet and thousands of employees in the oil and gas sector were laid off. The province has been feeling the effects ever since, although signs of recovery emerged in the last quarter of 2016.
The economic downturn did affect some aspects of the commercial real estate investment market in Alberta, according to brokerage firms that specialize in the sector.
"When oil prices dropped and produced far-reaching consequences across the Alberta economy, the traditional buyers of larger investment real estate €“ institutions, real estate investment trusts and pension funds €“ stepped back somewhat from Alberta investment," says Rick Argue, senior vice president, national investment services and brokerage, with Colliers Macaulay Nicolls Inc. in Edmonton.
For retail properties, however, the trend was different, he says. "From small strip malls to larger institutional-quality retail properties, demand continued unabated and, in fact, has increased. In Edmonton in 2016, we saw a record number of transactions and a record sales volume in retail assets."
With more cautious institutional investors, private investment led by high-net-worth individuals and syndicates increased their activity in the retail investment market, he adds. "Private investors, who have had access to very attractive financing at this time of low interest rates, have largely driven the market over the past couple of years."
Purchasers of Alberta retail assets can expect good returns in part because of the strong foundations in the province's retail sector, says Mr. Argue's colleague, Mark Swaenepoel, vice president, national investment services at Colliers International.
Palisades Shopping Plaza, Edmonton, Alberta, one of ReDev Properties' retail properties
"Retail spending in Alberta has traditionally been the highest per capita in Canada," says Mr. Swaenepoel. "During the downturn, retail spending here has fallen slightly, but it is still above the national average €“ and retail vacancy rates are between three and four per cent, which is a landlord's market."
In a slow economy, some would-be investors expect to acquire real estate at "bargain-basement" prices, says David Young, vice president and Edmonton manager with real estate brokerage firm CB Richard Ellis Alberta. "Those expectations weren't realized. Especially in the core property classes, such as retail, we had very few foreclosures, for example."
Retail properties are strong investment performers through periods of economic fluctuation because many retailers continue to perform well in the tougher times.
"Even with company layoffs and rising unemployment, large cities such as Edmonton and Calgary have economies that continue to function," Mr. Young says. "Retailers are still relatively successful. People still need to go to shopping centres to buy food, go to the drugstore and get a haircut. Retail is definitely a real estate asset class in demand, both in the private sector and for the institutional investor."
Canadian commercial real estate asset manager ReDev Properties Ltd. is confident that its retail properties in Alberta will continue to produce good investment returns, as they did in 2016. The company invests in the types of retail assets more likely to withstand economic ups and downs.
"Our interest is in neighbourhood shopping centres in mature neighbourhoods, where people have lived for a long time," says Richard Crenian, president of ReDev Properties. "We are committed to finding properties that are neighbourhood-based with more €˜convenience'-type plazas. Those tend to be more recession-proof, with a constant demand for local goods and services."
The ReDev Properties president is expecting a stronger retail estate sector in Alberta over the coming year, along with growth in investment opportunities. "The Alberta economy is slowly recovering. We expect people are going to be moving back to Alberta looking for jobs and spending money €“ and that should help those working in retail properties," says Mr. Crenian.
"Forecasters see the fourth quarter of 2016 as the bottom of the economic cycle," he says. "We believe now is the time we should be accumulating more retail properties. For anyone thinking of investing in retail real estate €“ now is the right time to place your bets."