At one point, during the boom in oil and the robust Canadian economy, Alberta was one of the leaders in occupancy, rental increases and new construction. Today after a very protracted recovery, issues with getting pipelines built and a slowing Canadian economy, Alberta has become the problem child of the Canadian Storage Market. Having said that, it’s not all bad.
We are seeing good market activity including strong leasing, increasing rental rates and occupancy levels in some sub markets such as Lethbridge, Brooks, Medicine Hat, Wetaskiwin and Chestermere. All of these markets have had new facilities either under construction, completed or in the late planning phases in the last few years and all of these markets seemed to have bucked the overall trend in Alberta. This is mostly due to a diversified economy that is not dependant on Oil and Gas. Having said this, now is not the time to go rushing into these markets with a new facility as you have already been beaten to the punch.
Markets that are somewhat dependant on the Oil and Gas sector for office and administration jobs have been hit hard over the past five years and this continues to this day. Calgary as of March 2019 had the highest unemployment rate of any City in Canada and an office vacancy rate above 25% (Closer to 40% by some estimates). Although fairing a bit better, Edmonton has not seen a speedy recovery from the economic downturn caused by the fall of oil and gas prices in 2014 and carrying forward to this day.
The storage market in Calgary has seen occupancies fall from the peaks of above 90% seen in late 2014 to the Mid 70% range in many previously stabilized facilities. In addition, new facilities have been having difficulty in their lease up phase. These occupancies issues have also caused a slight decrease in rental rates seen across the market. There are some areas that have not been hit as hard but have also seen decrease in rental rates and occupancies.
The markets of Fort McMurray and Red Deer have seen occupancies fall off dramatically over the past 6 months. The Fort McMurray decline in occupancy can be directly attributed to the loss of residents after major fires swept through the City. Some estimates put the loss of residents as high as 10,000 people. In addition to this, the Oil and Gas sector which is the main economic driver in the City has been struggling for the past years thus reducing the number of non resident employees and in turn their need for storage.
Red Deer has also been very hard hit with the downturn in the Oil and Gas sector as it was a major centre for Oil rig maintenance and related activities. As there are fewer oil rigs working, the demand for these services have been greatly reduced thus reducing employment as well. Until there is a rebound in this sector, both occupancies and rates will continue to suffer.
Where so we go from here?
At the end of Q1, we are starting to see two different stories emerge in Alberta. The first story is not a happy one with occupancies stagnant if not falling, rental rates in slow decline and not a clear path forward to fix these issues. This story is true in many of the Oil and Gas dependant areas of the province and will take some real work both provincially and federally to help fix these issues and make this story have a happy ending. With an election looming in Alberta there is a possibility of some positive news coming in Q2. The second story is of smaller markets that have diversified industries and show above average growth in both occupancies and rental rates. In these markets, we are seeing some new facilities in the planning stages and some good storage numbers over the past year. The same things that would be positive for the markets hard hit by the Oil and Gas slow down will be positive for these markets as well. Overall we are cautiously optimistic for the storage market across Alberta for the remainder of 2019.