2023 has been peppered with questions surrounding commercial real estate. Stakeholders are wanting flexibility and adaptability as the economy cools down, interest rates increase, and wallets tighten. The gap between buyer and seller expectations will continue to shrink as prices drop in 2023. While many people will have seeds of doubt, 2023 will pave the way for investors to take creative risks leading to long term growth strategies.
Demand for Medical Offices
At the end 2022, the overall Edmonton office vacancy rate was approximately 19.6% (Cushman and Wakefield Q4 2022 Market Report). The investor demand for medical offices will continue to grow in 2023. Meadowlark shopping mall, for example, has been converted mostly into medical offices. Surgeons, General Practitioners, Immunologists, Dermatologists and Dynalife have offices in this building along with Walmart. This trend will continue to grow in 2023 as more mini-malls will be repurposed into medical offices. Downtown Edmonton offices will continue to face cosmetic and safety issues. Employees will have low incentive to return to their downtown office if they are feeling unsafe.
Renters will Continue to Rent Longer
Stagnation and tightening monetary policy will continue to set the tone for 2023 commercial real estate. Interest rate hikes and less credit leads to slower economic growth with potential for a mild to moderate recession. The commercial and industrial leasing market has increased substantially as debt has become more expensive and buyers are seeking creative financing solutions. Multi-family properties will be in high demand as the cost-of-living increases for families forcing them to rent for longer periods. Investors are being forced to adapt to market conditions by repurposing existing buildings. Other options are being explored such as modular construction, a cost effective and time saving solution for housing affordability shortage. The negative stigma associated with modular homes – “dirty, trashy and unkempt” will need to change if this idea will gain traction with commercial developers and consumers alike.
Repurpose and Redevelopment
Urban industrial spaces are converted to retail and office space and multifamily properties and/or medical offices. Commercial properties are being repurposed and redeveloped to cater to consumers. Those tenants who are growing their office space are demanding higher quality spaces thus prompting investors to update their buildings.
For the majority of businesses, the hybrid work model and the current economic conditions have led to a lot of uncertainty. Organizations are finding short-term two-year leases with flexible terms to expand or contract their office footprint more appealing for the interim. The standard five- and ten-year office lease agreements may no longer be the norm for landlords and renters in 2023.
Neighborhood Shopping Centers
Your local shopping center – the place that takes 5 minutes to get to from your residence will continue to perform well. These small shopping centers are located in densely populated neighbourhoods and offer consumer conveniences such as groceries, fast food restaurants, haircuts, prescriptions and coffee.
The Consumer Experience
West Edmonton Mall (WEM)has become a destination focused on the consumer experience. Some services WEM has added to enhance the consumer experience include having a meet and greet with an African Penguin or a Sea Lion Encounter. Canada Goose installed a cold room where you can go and test their jackets. It is important to alleviate those small inconveniences to make a smoother consumer experience and attract customers to spend money offline.
What consumers eat and how food is acquired are two significant changes in the grocery industry over the last two years. More people than ever are ordering food via Skip the Dishes, Door Dash and Hello Fresh, etc. for the convenience and fresh food and eating at home.
Grocery stores are also trying to stay relevant by offering a quick delivery service. Instacart is offering delivery service from Superstore and Save on Foods offers an in-house delivery service. Kroger, a grocery chain out of the United States, is offering in-house ghost kitchens that will offer on-demand restaurant food. Restaurants brands can offer up their signature dishes in local neighbourhoods located inside grocery stores. Consumers in Edmonton will likely see onsite ghost kitchens located in grocery stores in high density neighborhood shopping centers.
Online shopping will continue to change and dominate the retail landscape. Pop up shops and omnichannel strategies are being implemented by Brick-and-Mortar shops to keep people coming to their establishments. Retailers are implementing omnichannel strategies such as integrating physical stores, online stores, marketplaces, mobile apps and catalogs for consumers. The demand for warehouses is in high demand. Large retailers such as Staples are readjusting their brick-and-mortar footprint with smaller storefronts and larger warehouses.
Edmonton and surrounding municipalities will continue to grow as a manufacturing and distribution hub. Protecting the supply chain means manufacturing will be brought back locally (aka “onshoring”). Corporations will continue relocate to the outskirts of Edmonton. Lower barriers, less red tape, lower tax rates and less bureaucracy are major incentives for corporations to relocate to Acheson or Nisku. Employers are also trying to entice their employees to return to work by installing gyms, patios and communal kitchens. Employee demand for solar paneling and providing charging stations for EV have also increased.
The biggest wild card for 2023 will be taming inflation. This will translate to demand for more power grids, robotics, and automation to make businesses more efficient. Other creative solutions to save money in 2023 will include converting local warehouses and existing retail so that products are near the consumer. Fifty three percent of shipping costs are from the last leg of deliver. Savvy investors will find creative solutions to reduce shipping costs.
Bolson Engineering and Environmental Services is passionate about development. We have partnered with several commercial property owners and commercial brokerages. It pays to know what you are signing up for. We have had the opportunity to design, rezone and project manage some awesome commercial/industrial developments across Alberta. Have a vision? Let us engineer your ideas.