Category Archives: Commercial

Office Property in Alberta

Update of Dream Office REIT

The below news article from Andrew Willis of The Globe and Mail signals the expectation that contrarian investment fund Slate Asset management will purchase a significant portion or all of its Alberta properties. Dream last year wrote down a very significant portion of its 45 properties. As the report records, two very different views on Alberta real estate are destined to converge as Dream exits the market and Slate takes a much longer view.





On 10 August, Dream Office REIT reported its second quarter earnings to 30 June 2016. This Ontario-based real estate investment trust owns or is part-owner of 45 properties in Alberta with a total of 561 tenants. As reported in the media, the REIT took write-downs of $675 million in the June ending quarter and $748 million for the first six months of their fiscal year.  According to its Management Discussion and Analysis (MD&A) document, “the decline was mainly driven by the continued downward pressure on market rents in the Alberta region where it contracted by $4.29 per square foot from $18.45 per square foot to $14.16 per square foot.”  In contrast to the Toronto marketplace where expiring leases of $22.26 are lower than current market rents of $24.2 per square foot, in Alberta expiring leases are $18.92 a square foot rates of $14.64.

What is most newsworthy are some of the reasons given by the company for its write-down. “Since July of 2014, the oil and gas industry has been beset by significant financial deterioration.  Throughout 2016, economic conditions have remained the same or deteriorated.  The combination of vacancy increasing to over 20%, reduced office workers and increased supply of new office buildings indicates that the recovery of demand for office space and increase in occupancy rates and rental rates may be delayed. As at June 30, 2016, the Trust noted a significant and prolonged deterioration in leasing volume as well as key operating metrics such as market rents, leasing costs and vacancy rates relative to the Trust’s expectations over the past six months. These observations are consistent with external data points as at June 30, 2016. Based on the continued challenges in the Alberta office sector, the Trust revisited all assumptions used in the discounted cash flow model in valuing the Alberta investment properties to reflect the continued slump.”

Before concluding that Dream Office REIT’s 45 per cent write-down implies similar valuations across the province, one must understand the nature of the REIT’s underlying portfolio.  Dream Office REIT’s Alberta properties are mainly older, smaller Class B buildings in Calgary threatened by new product entering the market. A occupancy rate  (going from 88.5 per cent to 84.2 per cent year over year) is another factor informing REIT valuations. It is fair to say that sentiment towards Alberta has waned due to persistently low oil prices and rising unemployment.

Dream Office REIT price to 18-8-2016

According to the MD&A key drivers in the valuation of office real estate include: changes in GDP,  employment and unemployment rates, vacancy rates, interest rates, and performance and/or sentiments of the stock market and commercial real estate.

On 9 August,  HR REIT reported its quarterly June results. This REIT took a decrease of $136 million from December 31, 2015  on the stated value of its Calgary office portfolio. According to its MD&A, since 31 December  2014, H&R has recorded a decline in value of $340 million.   This amount is roughly 10 per cent of the value of its Calgary properties. The Trust’s largest tenant is Encana which leases the Bow Tower. Adjusted same-asset property operating income for the REIT in Alberta fell to $53.9 million from $58.3 on a quarterly basis to 30 June 2016.   Year-over-year declines for the first six months were  4.7 per cent.











Alberta REITS downgraded amidst weakening Alberta market17-8-16 EJ

Commercial real estate

Recent Developments

Dream Office Real Estate Investment Trust has taken a very large write-down of its properties in Alberta. According to a CBC Digital Media report , this REIT is taking a significant write-down of  $748 million or 45 per cent of its Alberta holdings!  This must be disturbing news for not only Alberta landlords but also financial institutions, including banks, pension funds, insurers and ATB Financial.

A new attraction to rental housing17-6-17 GM

Office vacancy rate doubles12-5-17 EJ

‘Pretty dismal’ – Alberta hotels continue to reel from economic downturn and building binge13-5-17 EJ

Legal Notice Walton Group of Companies-9-5-17 GM

Walton Group files for creditor protection2-5-17 GM

Walton International Group receives creditor protection2-5-17 EJ

Empty Calgary office space may grow amid oil deals-report20-4-17 GM

Spanish energy giant plans to sublet Calgary offices6-4-17 EJ

Cenovus relocation delayed amid oil downturn3-4-17 GM


Commercial real estate values slashed12-8-16 EJ

Dream Office hit by Alberta oil woes12-8-16 GM

Commercial real estate is big business in Alberta. Calgary and Edmonton constitute two very large markets for commercial developers and landlords. Calgary’s downtown commercial real estate market is the second largest in the country and has been driven by the demands of energy companies and associated service firms including engineering firms, financial institutions and law and accounting firms. Edmonton’s real estate market is dominated by provincial government and provincial agencies leasing space.

A second facet of commercial real estate is the apartment rental business. Given the weakness in employment, landlords must be willing to provide incentives to attract renters or to maintain existing occupancy levels.


Artis readjusts REIT Alberta portfolio30-8-16 GM


Cenovus shops office space amid glut20-6-16 GM

Oil downturn finally hits Calgary’s core21-6-16

Seniors Home Vacancies down in Edmonton9-7-16 EJ

Landlords sweeten leases as Calgary towers empty15-7-16 EJ

Office tower projects delayed26-8-16 EJ