Construction Costs and Development Fees Create Perfect Storm for Edmonton Real Estate
Edmonton's rapid economic growth faces a substantial hurdle as escalating construction expenses and soaring development fees create significant barriers for commercial real estate development. According to industry experts, these financial pressures are having a "real dampening effect" on the market, limiting new projects and expansion opportunities throughout the city.
Industrial Vacancy Rates Signal Need for Expansion
The latest report from commercial real estate giant CBRE reveals Edmonton's industrial vacancy rate stands at just five percent, with projections indicating a further decrease to 4.5 percent through 2026. This exceptionally low vacancy rate would typically spur significant new construction as businesses require additional space for operations and expansion.
Despite having industrial tax rates significantly higher than neighboring municipalities, Edmonton maintains healthy occupancy levels in its industrial parks. The city desperately needs increased tax revenue from industrial landowners to offset current pressures on residential taxpayers, making new development projects particularly important for municipal finances.
Construction Costs Outpace Inflation Dramatically
Mark Anderson, vice president and regional manager of CBRE's Edmonton operations, highlights the prohibitive nature of current construction pricing. "The construction pricing that exists today has exceeded the rate of inflation," Anderson explains, noting that improvement projects that cost $85 per square foot just a few years ago now range between $150 and $175 per square foot.
These improvement projects refer to existing buildings that require renovation for new tenants. For example, an industrial tenant needing thousands of square feet in northwest Edmonton might require additional meeting rooms or a refitted cargo bay. The dramatic cost increases force landlords to question whether such renovations are economically viable, especially when lease rates cannot be raised sufficiently to cover construction expenses that have essentially doubled within a short timeframe.
Development Fees Compound the Problem
The CBRE findings align with a separate study from NAIOP, a North America-wide commercial real estate development organization. Their research reveals that development fees in Edmonton have increased by a staggering 628 percent over the past fifteen years.
Alex Thomson, past chair of the Edmonton branch of NAIOP, describes the combination of rising construction costs and escalating development fees as creating a "perfect storm" of disincentives for builders and developers. This dual financial pressure significantly reduces the economic feasibility of new construction projects throughout the city.
Market Consequences and Limited Options
The financial realities create what Anderson describes as a real estate feedback loop:
- Companies needing to expand search for new space
- New construction projects remain scarce due to high costs and associated risks
- Businesses explore existing spaces requiring renovation
- Renovation costs prove prohibitive for landlords
- Companies ultimately stay in their current premises or restart their search
"It makes it a little more challenging to contemplate options," Anderson notes. "If you can't go shopping for space because you can't entertain the idea of a building where you need to build brand-new offices from scratch, that limits you to buildings that have already been constructed, or just renewing and staying in your current premises."
The combination of these factors creates significant limitations for Edmonton businesses seeking to grow and expand within the city, potentially impacting economic development and job creation throughout the region.
