Real estate analysts anticipate some rattling of the status quo following Alberta’s upending election outcome, but emphasize that any government’s agenda is only one element of a larger package of market influences. Meanwhile, industry advocates are focused on getting acquainted with the new decision makers.
“The next few months are going to be pretty rigorous. In some ways, it’s really going back to the starting line,” says Brooks Barnett, manager of government relations with the Real Property Association of Canada (REALpac). “We have to kick our advocacy program into overdrive, and the education piece is paramount because we are dealing with new people who aren’t familiar with our issues.”
While government turnover shouldn’t be remarkable in a democratic society, it’s far from common in the province of Alberta. A significant percentage of today’s real estate professionals, including the executive director of the Building Owners and Managers Association (BOMA) of Calgary, had not yet been born when the outgoing Progressive Conservative government first came to power in 1971.
“BOMA Calgary will definitely be introducing ourselves and our industry to the new government at the earliest opportunity,” Lloyd Suchet affirms. “We view ourselves as partners in helping build this province and are looking forward to seeing how we can work with the new government to make our province and our sector even stronger.”
Economic uncertainty in Calgary and Edmonton
Admittedly, there are some challenges right now. Avison Young pegged the Calgary-wide office vacancy rate at 10.2 per cent for the first quarter of 2015, as one million square feet of space was returned to the market. This notably included 805,000 square feet in the downtown core, boosting the downtown vacancy rate from 7.2 per cent in the fourth quarter of 2014 to 9.1 per cent by March 31. Edmonton’s overall office vacancy rate similarly registered 9 per cent at the end of the first quarter.
The falling oil and gas prices underlying much of Alberta’s current financial stress also tracked through to 2014 returns on directly held real estate investments, unveiled earlier this year with the release of the REALpac/IPD Canada annual index. Total returns of 8.8 per cent in Calgary were down from 12.9 per cent in 2013, while Edmonton’s 6.7 per cent total return for 2014 was an even steeper drop from 12.8 per cent in 2013.
A New Democratic Party (NDP) government – perceived as more left-of-centre and perhaps less friendly to business – may add another measure of uncertainty, but industry watchers suggest there was little in Premier-elect Rachel Notley’s campaign platform to cause undue worry.
“The new government in Alberta has yet to clarify what changes, if any, it might make to the royalty regime. However, I don’t expect it will be so drastic as to shut the oil and gas industry down,” says Chris Langstaff, senior vice president, research and strategy, with LaSalle Investment Management. “It really depends more on oil and gas prices and less on who is the government. There are much bigger forces at play that drive supply/demand and to which the real estate industry reacts.”
The downturn of the early 1990s, in sync with the unexpected ascendancy of an NDP government in Ontario, congruously illustrates Langstaff’s point. “Those were dark days and the real estate sector was literally in despair, but it was supply/demand driven, not because of the provincial government per se,” he recalls.
Outside investors, like everyone else, will probably need some time to scrutinize Alberta’s new political landscape.
“The uncertainty of the near-term changes may put some decisions on hold for any investor,” reasons Jeanette Rice, head of investment research, Americas, with CBRE. “U.S. investors generally like pro-business governments and certainty in policy, but U.S. real estate companies buy real estate all the time in countries that have political systems much different from the U.S.”
Government lobbying efforts required
“Real estate investments have always benefitted from a friendly business climate and transparent policy environment,” observes Carl Gomez, senior vice president and chief economist with Bentall Kennedy. So, in that sense, a new government simply presents an opportunity to make new friends and help them to see the advantages of various policy directions.
“A lot of our members are in Alberta so REALpac does a lot member consultation and gets them to do the talking as well,” Barnett explains.
Alberta’s Municipal Government Act is one such of issue of concern, as interest groups throughout the province contemplate the heretofore rarity of shelved government consultation processes. For example, Suchet and his BOMA Calgary and BOMA Edmonton colleagues are wondering what will become of two years of work devoted to advising the outgoing government on proposed amendments to the Act.
“What effect a change in government will have on this process is not yet clear, but BOMA Calgary will continue to advocate for more equitable and transparent taxation, and regional planning that is more efficient in its use of resources like land, water and transportation,” Suchet says. “Certainly, BOMA will continue to fight for our members’ interests when they run counter to government policy, but we think more can be achieved through dialogue, and we hope to serve as a resource to governments of any and all political stripe.”
Barbara Carss is editor-in-chief of Canadian Property Management.
