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Owning vs. Leasing – Commercial Real Estate

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Introduction

Edmonton’s commercial real estate market is dynamic, influenced by various factors that can affect the optimal timing for selling a commercial property. Understanding these factors is crucial for property owners in Edmonton, Alberta, to make informed decisions.

Internal Factors

Lifestyle and Management Intensity: Commercial properties in Edmonton typically require less management compared to residential properties, thanks to fewer tenants and longer lease terms. However, managing a substantial portfolio can become a full-time job. Simplifying your investment portfolio might necessitate selling some real estate assets, especially if managing them becomes overwhelming or less enjoyable​​.

Retirement: Real estate can be a valuable asset for funding retirement, but it can also turn into a demanding job. If you’re nearing retirement and do not wish to engage in active property management, selling your commercial property might be a prudent decision​​.

External Factors

Market Conditions: The state of the Edmonton commercial real estate market significantly impacts the timing of a sale. For instance, an office building with a long Weighted Average Lease Term (WALT) in a high vacancy market might be better sold sooner rather than later. Conversely, properties in markets with low vacancy rates and upward pressure on lease rates may present opportunities either for holding and enjoying increased lease rates or for selling to more bullish investors​​.

Industry Trends: Edmonton’s market, particularly sensitive to the oil industry, experiences fluctuations based on the performance of this sector. Generally, the principle of ‘buying low and selling high’ applies, though market recovery is never guaranteed, as seen in other regions like the U.S. Rust Belt​​.

Asset-Specific Factors: Lease rates, the financial strength of tenants, and the condition of the building are crucial factors. Higher lease rates with upcoming renewals might pose risks for buyers, affecting the property’s valuation. Similarly, the physical condition of the building, especially older properties, can significantly impact its value​​.

Edmonton’s Commercial Real Estate Market Trends (2023)

Strong Investment Growth: The first quarter of 2023 saw robust investment in Edmonton’s commercial real estate, with sales volume nearing $800 million. Industrial and land asset classes led this growth​​.

Industrial Sector Dominance: There has been a surge in logistics, warehousing, and distribution tenancies. The industrial sector in Edmonton continues to show strong demand with tight inventory, especially for multi-bay properties​​.

Retail Sector Strength: The retail sector, particularly in suburban areas, has shown exceptional growth, driven by population growth and higher disposable incomes. Demand for smaller retail footprints is increasing as retailers become more efficient​​.

Office Sector Challenges: The office sector faced softer activity in early 2023, with higher availability rates. However, demand for suburban office space has remained relatively steady, and a shift to quality has been observed, with landlords upgrading their properties​​.

Overall Positive Outlook: Edmonton’s commercial market is expected to maintain its strong performance throughout the year, with industrial remaining the frontrunner. Other asset classes, except central office space, are anticipated to perform well​​.

Conclusion

Deciding when to sell a commercial property in Edmonton requires a nuanced understanding of both internal and external factors. The current trends indicate robust growth in industrial and retail sectors, while the office sector faces some challenges. Owners should consider their personal circumstances, market conditions, and the specific attributes of their properties when deciding the best time to sell. It’s always advisable to consult with a real estate professional to make the most informed decision.

 

 

 

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