Vacancies: 8.1% ↑
Rents: $1,100 ↓
Fundamentals for New Apartment Construction Work Well in Calgary and Edmonton
This influx of jobs and migration to Alberta’s heated economy and the specialised nature of some of the jobs around the oil industry have fed a demand for housing, especially short-term, multi-family housing. Throughout the province, at least 7,500 new units were added to the apartment universe in the past decade, with the bulk of that growth coming in Greater Edmonton (3,300 units), Calgary (1,500 units) and Fort McMurray (1,181 units). Fort McMurray’s explosive population growth (a 68% increase since 2001) has meant that new construction now takes up 40% of the local marketplace.
There was a brief interruption in Alberta’s economic good news, as the 2008 recession reduced demand for oil, but oil prices are increasing again, and the outlook for the commodity is good. The apartment rental market has also shifted in relation to the rise and the fall of the condominium market. The condominium market was stronger in Calgary ten years ago, resulting in a boom of construction that significantly increased supply. Now that the condominium market is softer, more developers have been drawn into rental. Edmonton’s building boom is already underway, and we predict that Calgary’s new apartment construction will explode.
In terms of rents, Fort McMurray’s average rents are higher than Toronto or Vancouver. Edmonton and Calgary’s rents are also on the increase, with Edmonton’s rents rising over 28% over the past five years, and Calgary rising by 15% over the same period.
These rising rents, combined with a more landlord friendly tenancy act and development charges that are lower than those seen in Ontario and British Columbia, have made new construction highly economical, especially in wood-frame low-rise construction where, in many cases, the resale market has increased building prices beyond replacement value. In addition to Calgary, Edmonton and Fort McMurray, new construction has also taken place in Lethbridge, Camrose, Grand Prairie, Medicine Hat, Red Deer, Wetaskiwin and Sylvan Lake.
As oil prices are likely to stay high for the foreseeable future, the commodity should remain the mainstay of Alberta’s economy in the years to come, with considerable activity taking place in and around Fort McMurray as the oil sands are developed. Spin-off growth should also benefit Calgary and Edmonton, and vice versa.
Alberta has also taken steps to diversify its economy, building its high-tech sector. This will mean an increase in high-paying, high-skilled jobs, and an influx of young professionals to Alberta’s largest urban areas. Calgary and Edmonton are responding to the problem of urban sprawl by enacting official plans that call for the intensification of their urban cores, with increased densities along major transportation corridors.
More importantly, as Alberta’s population continues to grow, so to will the need for new educational institutions, and there will be a corresponding need for new student housing to serve those institutions. Alberta already has six universities serving 136,361 students in Edmonton, Calgary, Lethbridge, Camrose and Athabasca, and the University of Alberta has plans to expand its new campus on the south side of Edmonton.
Alberta’s diversifying economy and its strong commodities sector bode well for new apartment construction for the foreseeable future.
CONSTRUCTION INFLATION CAN RAISE COSTS OF NEW DEVELOPMENT
In any heated construction market, construction inflation is a concern to developers as it can raise the costs of new developments beyond what is economically feasible to build. In Alberta, the development of the oil sands and related growth, not to mention the rush to meet the increased housing demand resulting from job growth and migration, can absorb construction labour and building supplies, raising prices in the apartment construction industry.
In Calgary, concrete costs significantly more per metre compared to other centres like London, Ontario. In Alberta, this has given a considerable advantage to low-rise wood-built developments over high-rise concrete ones. Though the apartment markets in Calgary and Edmonton are so heated that older buildings are selling for more than the replacement cost of wood-built buildings, they haven’t reached the replacement cost of concrete buildings, yet.