Office receivership sale touts conversion potential

Office receivership sale touts conversion potential

Friday, September 1, 2023

Conversion potential is the main marketing point for an office receivership sale now in the works in downtown Edmonton. Compass Place, a 10-storey, 85,000-square-foot tower in the city’s government district, has been listed for $6.5 million.

A design consultant’s study hypothesizes the 9,276-square-foot floorplate could have a 93 per cent efficiency ratio for residential rental purposes. The sales agent, engaged by the insolvency trustee MNP Ltd., also points to a wide range of urban amenities in the vicinity, including University of Alberta, MacEwan University and NorQuest College, the Ice District arena complex, the Jasper Avenue commercial strip and two light rapid transit (LRT) stations.

Currently, the 49-year-old building is slightly less than 71 per cent occupied and generates about $205,000 in annual net operating income. Avison Young pegs Edmonton’s average downtown office vacancy at 20.5 per cent as of June 30, 2023 — 870 basis points lower than at Compass Place. Drilling down further, the Class B office vacancy rate in the government district stands at 17.6 per cent with Class C vacancies at 10 per cent.

CBRE Canada analysts speculate there could be more bad news for the area. “The recent provincial election that resulted in the incumbent United Conservative Party being re-elected to power may impact future market vacancy. Should the public sector shrink under provincial leadership, more space could be expected to be returned to the market over the near term,” the firm’s Q2 office market report states.

Edmonton’s downtown Class B office also posts some of the highest cap rates in the country as of Q2, in the range of 9.25 to 11.25 per cent, compared to the downtown Class B national average of 7.8 per cent. However, CBRE’s overview of Q2 cap rate and investment trends is more upbeat about multifamily.

“The Edmonton multifamily market continues to strengthen due to strong employment growth and positive net immigration for the city and province. Landlords of all product types now have pricing power leading to meaningful NOI growth that has helped offset the rise in expenses over the past few years,” observes Dave Young, an executive vice president with CBRE’s national investment team.

Avison Young analysts predict that conversion developers will consider downtown Edmonton with interest if or when attractively priced office properties become available.

“By Q4 2023, we expect to see more buildings entering the market, generating interest from investors and developers alike,” states Avison Young’s Q2 office market report. “One such building nearing completion of its conversion is the former Enbridge Tower, located on the corner of Jasper Avenue and 102nd Street, which is expected to welcome renters by the end of the year.”

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