Avison Young in Lethbridge
Since Avison Young opened its Lethbridge office in 2009, the company has since become a dominant presence in the Southern Alberta commercial real estate market. It was started by a team of highly-skilled professionals who had established themselves as very successful associates in both sales and leasing in Lethbridge and the surrounding area. The professionals in our office work closely with other Avison Young offices, particularly Calgary and Edmonton, to facilitate national and international sale and leasing transactions.
The Lethbridge office houses Avison Young and Avison Young Property Management, allowing us to better service the needs of our clients.
Area Overview
Lethbridge is the fourth-largest city in Alberta by population and third-largest by area. Located in Southern Alberta, Lethbridge is in the center of a trade area that serves over 340,000 people across parts of Alberta, British Columbia and Montana. Lethbridge is officially a census metropolitan area and currently the fifth-fastest growing city in the country, growing at a rate of 10.8% between 2011 and 2016.
Initially built around agriculture and coal-mining, Lethbridge now has a diverse range of key industries including commercial, financial, transportation and industrial. Additionally, Lethbridge is home to one university and two colleges.
Markets
OFFICE
Lethbridge’s office market consists primarily of downtown Lethbridge with new developments emerging in West Lethbridge and business parks in recent years. The business parks are located on the city’s outskirts, providing more ownership opportunities for office users, as well as locations with more parking. With many businesses looking for ownership opportunities and expansion, significant movement is possible in coming years.
Office rental rates have remained stable around $15 psf, while vacancy rates dropped to 10.7% in late 2018 from 12.8% at year-end 2017. There is increasing demand for office space in the suburban areas of the market – a factor which will likely spark new construction in 2019. Tenants are finding that the suburban areas offer ample parking and comparable lease rates to the downtown area for brand new high-quality buildings. Demand for downtown space is expected to remain consistent. Declining office vacancy will begin to exert upward pressure on rental rates in 2019.
RETAIL
Lethbridge’s commercial retail sector has experienced tremendous growth in recent years with many new retailers coming to the city. The strongest growth has been and is expected to continue in West Lethbridge, the largest and fastest-growing region of the city.
Coming off a slow 2017, retail activity rebounded in 2018. All retail nodes in Lethbridge recorded activity involving a diverse group of local and national retailers. With nearly 130,000 sf of vacant midto- large-format retail space being backfilled in south Lethbridge (the city’s most dense retail node), vacancy in that area is at an all-time low. The advent of retail cannabis, following federal legalization of marijuana, has applied considerable leasing pressure to otherwise stagnant vacancy. If the demand for retail space (including CRU, pad and mid-box) continues, Lethbridge will see pressure on retail inventory for the next 12 to 18 months with land values and lease rates holding firm.
INDUSTRIAL
The industrial market in Lethbridge continues to see significant growth as new developments emerge around the city, providing ownership opportunities and creating movement. Cavendish Farms recently announced plans to build a new processing plant in the city; at 116 hectares of land, it is the largest development ever made in the city and is expected to create significant growth in all sectors.
Lethbridge’s industrial sector moved back toward historical norms during 2018. Vacancy rose to 6.4% by the third quarter, from 4.7% in 2017 as medium-sized industrial condo units (ranging from 4,000 to 10,000 sf ) came online. While leasing activity decreased year-over-year, the market is still healthy. Sales remain strong with industrial condo options being the most popular choice. Land sales also stabilized at $230,000 per acre as the number of available parcels at Sherring Industrial Park dwindled. The City of Lethbridge is planning a new phase of industrial development on land to the north of Sherring Industrial Park between the park and the new Cavendish Farms food processing plant. Industrial vacancy is forecasted to drop to 5.5% by year-end 2019, as there is little new forthcoming inventory.
INVESTMENT
There was little investment activity in Lethbridge in 2018 as good quality assets at acceptable cap rates remained hard to find. Crombie REIT offered a retail site for sale that is shadow-anchored by a grocery store, but the cap rate proved too low for buyers in the market. RioCan REIT put a couple of retail sites on the market earlier in the year with a similar result. Required cap rates for investors have gone up. For example, an office-building sale closed in December 2018 at a cap rate of 7.3%, and the sale of a new multifamily complex is set to close in 2019 at a 6.25% cap. With interest rates increasing, cap rates will rise or remain flat through 2019 as there is still demand for good-quality assets. As of late 2018, good assets could be found in the 6% to 8% range.