Edmonton’s real estate market in 2016 was bleak. We saw high vacancy rates, low rental prices, and fear of the impending carbon tax. However, a downturn like this won’t last forever.
The October CMHC report on vacancy indicated an overall vacancy rate average in Alberta of 8.1%. The Edmonton vacancy rate is both above and below that number with some Class B areas in the 13% range and Class A areas as low as 4%. The overall prediction for 2017 is a flat, similar market.
2016: A Year in Review
For all units types in Edmonton, the average rental rate decreased by 1.9%. Excluding 2009, the city’s average rents have steadily increased each year since 1995. According to a report released by Cushman & Wakefield, the lowest rents can be found in North Central and West Central, which are under the $1000 mark. The greatest rental decrease (-7.2%) was experienced in Millwoods. Contributing to these falling numbers was the construction of many new rental units and increased competition from existing primary and secondary markets around the capital region. In an attempt to attract quality long-term tenants, many landlords provided rental incentives. This trend will continue into 2017 as landlords vie for tenants to decrease their vacancy rates.
Lower rent prices didn’t do much to combat the rise of Edmonton’s vacancy rates, which increased from 4.2% to 7.1%. Better vacancy rates were found in the university area, North East, East Central, West Jasper Place, and Millwoods. Properties built between 1990 and 2004 saw a lower vacancy rate (4.5%) compared to those built before 1960 (8.7%). This gap can be expected as tenants are more drawn to newer units with upgrades and better amenities.
What Stands to Influence the 2017 Real Estate Market?
With oil prices at $50.00 per barrel, oil companies are beginning their renewed activity. Major layoffs have mostly run their course, and some companies are already re-hiring, provided the labour force will accept much lower wages. If new pipelines like the Enbridge Line 3 and the Trans Mountain pipeline are approved, oil activity and the real estate market will improve significantly. We will keep our eye on the economic conditions and continue to talk to businesses to assist us in better preparing for future improvements to the real estate market.
Although 2016 hit the rental market hard, it didn’t seem to affect the prices of single family homes; they’re still high as ever. Edmonton’s population simply can’t afford to purchase starter homes or dream residences. As families are still struggling from oil field layoffs, many have had to downsize or rent in an attempt to reduce their costs. As for younger demographics, the city’s millennial population has jumped 48% over the last 15 years. With significant amounts of student debt on their shoulders, millennials are nowhere near financially stable enough to purchase a home. While they try to save for a down payment, they’ll likely rent for many years.
The Alberta government’s carbon tax will also affect landlords and investors. If the rent you currently charge includes utilities, you’ll have to absorb the increased costs caused by the carbon tax. If this is your situation, it would be realistic to expect a five to 15% increase in your utility bill depending on the mix of suites in your building, the demography of your tenants, and the location of your property. When dealing with a cost increase like the carbon tax, investors would usually pass this cost onto their tenants by increasing rent. Depending on spring economic activities and how Alberta’s population understands and adjusts to this increased expense, we may see a slight increase in rent during the second half of 2017.
Last year, Edmonton’s rental market went through a rough patch, and 2017 isn’t looking much brighter. The tenant pool has increased, but vacancy rates may remain on the higher side due to the availability of more units. Carbon tax and low economic outlooks have also put a damper on what used to be a steady market. Landlords and investors should brace themselves as they attempt to navigate 2017, and hope for better come 2018.