Expectations of cannabis carrying the commercial market in the West to new highs in 2019 were just a hallucination, according to a new report from the Re/Max realty firm.
Investors anticipated that the legalization of cannabis would drive both sales and prices up in the commercial real estate market this year, said Elton Ash, regional Executive Vice-President, Re/Max of Western Canada. But a variety of factors including overall supply, stigmas, approval times and licensing restrictions have impeded commercial property growth.
“Despite the pressures, we’re starting to see the market steady and 2020 looks more promising,” he said in a statement released Tuesday.
Calgary is still being affected by the ongoing downturn of the oil and gas industry.
“Demand that was initially seen in 2018 for retail cannabis locations has fallen,” said the report. The industrial market continues to be strong and relatively stable with the increase in demand for more affordable logistic supply management.
More sophisticated commercial buyers with the staying power to weather the remainder of Calgary’s downturn have entered the market, acquiring assets at a discounted price.
“The shift from a frenzied retail market to larger more sophisticated buyers and investors looking to set up cannabis production facilities is a good example of this trend,” said the report.
Calgary is expected to see modest growth in all segments of commercial real estate in 2020, according to Re/Max.
In Edmonton, the cannabis industry initially took off, spurring industrial building as well as retail and office leasing activity. The retail market has since cooled as producers concentrate on providing adequate supply and achieve sustainable cash flow. Larger players are looking to establish permanent market presence as they anticipate the legalization of edibles.
Co-working spaces account for approximately five per cent of the overall commercial market in Edmonton. These spaces are expected to grow to 10 to 15 per cent of the overall commercial market by 2030. Newer office towers in the downtown core are sought by global pension funds. Well-located retail and mixed-use projects are also seeing strong interest.
Overall sales are expected to be slightly down in 2020 in Edmtonon, with tenants in the oil and gas sectors hoping for increased recovery.
In Winnipeg, co-working spaces are becoming more popular, reports Re/Max.
But, “The struggle in Winnipeg’s office market continues as vacancy rates have notched up since the development of True North Square. Inducements have increased and landlords are reinvesting in their properties to make them more attractive.”
There has been significant investment in apartments as investors continue to look for stable income sources, said Re/Max. Industrial properties are also in high demand.
“Commercial markets in the prairies and in Alberta are still not out of the woods yet,” said Ash. “Economic recovery across the region is taking much longer than anticipated, negatively impacting the commercial property market.”
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