Investment Competitiveness Study City of Edmonton ______

Watson & Associates Economists Ltd. 905-272-3600 December 18, 2018 [email protected]

Table of Contents

Page Executive Summary ...... i 1. Introduction ...... 1 1.1 Terms of Reference ...... 1 1.2 Context ...... 1 1.3 Data Sources ...... 4 2. Macro-Economic Trends Influencing Development on Industrial Lands ...... 5 2.1 Provincial and Regional Context ...... 5 2.1.1 Edmonton Metropolitan Region Employment Trends and Cluster Analysis ...... 7 2.2 City of Edmonton Economic Structure ...... 10 2.2.1 Employment Base and Industry Clusters ...... 10 2.2.2 City of Edmonton Employment Growth Trends ...... 12 2.2.3 City of Edmonton Business Growth Trends ...... 14 2.2.4 Edmonton CMA GDP Growth ...... 15 2.2.5 City of Edmonton Competitive Share Analysis ...... 16 2.3 Regional Economic Growth Drivers ...... 18 2.3.1 Long-Term Energy Sector Growth Potential ...... 18 2.3.2 Diversification of Economy ...... 21 2.3.3 Strong Regional Long-Term Population and Employment Growth ...... 21 2.3.4 Major Infrastructure Projects ...... 22 2.3.5 Edmonton International Airport (EIA) ...... 23 2.3.6 Petrochemical and Basic Chemical Cluster ...... 24 2.4 Observations ...... 25 3. Regional Industrial Market Analysis ...... 27 3.1 Regional Market Area ...... 27 3.2 Industrial Market Growth Trends ...... 29

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3.3 Industrial Vacancy Rates and Market Rents ...... 31 3.4 Profile of Key Industrial Areas within Edmonton Metropolitan Region ...... 33 4. City of Edmonton Industrial Market Profile ...... 39 4.1 Edmonton’s Industrial Districts ...... 40 4.1.1 Northwest Industrial District ...... 40 4.1.2 South/Southeast Industrial District ...... 42 4.1.3 Northeast Industrial District ...... 43 4.1.4 Edmonton Energy and Technology Park ...... 44 4.2 Development Activity on Industrial Lands ...... 45 4.3 Industrial Lands Absorption Trends ...... 47 4.4 Underutilized Developed Industrial Lands ...... 53 4.4.1 Intensification Supply Potential ...... 53 4.4.2 Evaluation of Intensification Potential ...... 54 4.5 Vacant Industrial Land Inventory ...... 55 4.5.1 Vacant Industrial Lands Analysis ...... 55 4.5.2 Shovel-ready Industrial Land Supply ...... 66 5. Regional Industrial Competitiveness and Investment Readiness Analysis ...... 69 5.1 Locational Attributes and Access to Transportation Infrastructure ...... 69 5.2 Non-Residential Development Growth Trends ...... 70 5.3 Residential and Non-Residential Tax Assessment Ratios ...... 72 5.4 Industrial Land Supply Opportunities ...... 74 5.5 Cost of Development Parameters for Industrial Lands Development ...... 77 5.5.1 Price of Serviced Vacant Industrial Lands ...... 78 5.5.2 Off-site Levies per Hectare on Industrial Lands ...... 79 5.5.3 Non-residential Tax Rates...... 80 5.6 Servicing Standards of Select Industrial Areas ...... 82 5.7 Observations: Competitive Position of City of Edmonton Industrial Lands Relative to Surrounding Market Area ...... 85 6. Detailed Development Cost Competitiveness Analysis ...... 86 6.1 Overview ...... 86 6.2 Development Cost/Annualized Cost Comparative Analysis Framework ...... 87 6.3 Development/Annualized Cost Comparative Assessment ...... 89 6.4 Observations ...... 94 7. Assessment of Edmonton’s Industrial Districts ...... 95 7.1 Industry Sector Requirements ...... 95

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7.2 Industrial Areas Strengths, Weaknesses, Opportunities and Challenges Analysis ...... 97 7.3 Assessment of Competitiveness and Investment Readiness of Industrial Districts ...... 100 7.4 Observations ...... 113 8. Forecast Employment Growth and Industrial Land Needs, 2018 to 2028 ...... 113 8.1 Forecast Employment Growth, 2018 to 2028 ...... 113 8.2 Growth Outlook by Industry Sector ...... 117 8.2.1 Oil and Gas ...... 118 8.2.2 Manufacturing ...... 118 8.2.3 Goods Movement (Wholesale Trade, Transportation, Warehousing and Logistics) ...... 119 8.2.4 Construction ...... 121 8.2.5 Office Employment on Industrial Lands ...... 121 8.2.6 Employment Supportive Uses in Industrial Areas ...... 122 8.3 Forecast Industrial Land Demand, 2018 to 2028 ...... 122 8.3.1 Forecast Employment Growth on Industrial Lands ...... 124 8.3.2 Share of Employment Growth on Industrial Lands Allocated by Industrial District ...... 124 8.3.3 Forecast Employment Density on Industrial Lands ...... 125 8.3.4 Industrial Land Demand by Industrial District, 2018-2028 ...... 127 8.3.5 Industrial Land Needs within the City of Edmonton, 2018 to 2028 ...... 129 8.4 Forecast Industrial Land Demand by Sector/Land Use...... 130 8.4.1 South/Southeast Industrial District ...... 130 8.4.2 Northwest Industrial District ...... 130 8.4.3 Northeast Industrial District ...... 131 8.4.4 Edmonton Energy and Technology Park ...... 131 8.5 Regional Market Capture ...... 132 8.5.1 Northwest Industrial District ...... 132 8.5.2 South/Southeast Industrial District ...... 133 8.5.3 Northeast Industrial Area (Light/Medium Industrial) ...... 134 8.5.4 Observations ...... 135

Appendix A Detailed Cost of Development Tables ...... A-1

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Executive Summary

Watson & Associates Economists Ltd. (Watson) was retained by the City of Edmonton to prepare an Investment Competitiveness Study for the City. The assignment provides an update to the 2015 City of Edmonton Investment Competitiveness Study and is intended to help inform the City’s Industrial Investment Action Plan.

The intent of this report is to provide the City with a comprehensive assessment of current market conditions, target sectors on industrial lands, market readiness and competitiveness, as well as projected industrial land needs over the next decade within a local and regional context. This information will help inform the City in establishing recommended industrial segments in which to target attraction activities and increase development potential on industrial lands. This study will also serve as a resource for reviewing existing taxation policies, development regulations and engineering standards.

Context

Municipalities have a role to play in promoting economic growth by ensuring that they are “business investment ready” and “competitive.” In an increasingly competitive macro environment, municipalities need to better position themselves to capitalize on the economic potential and opportunities that exist.

Market competitiveness is typically driven by a broad range of factors that can strongly influence business location decisions, both for new development and expansion. Recognizing the evolving nature of the economy and planning requirements for today’s industries, this study explores Edmonton’s municipal development competitiveness within the context of a broad range of regional, community and site level factors.

In many respects the City of Edmonton’s long-term economic growth potential is largely tied to the success of the Edmonton Metropolitan Region as a whole. Over the past decade, the Edmonton Metropolitan Region has been one of the fastest growing Cities/ Regions in North America. With a robust economy and diverse mix of export-based employment clusters, the Edmonton Metropolitan Region is highly attractive. Notwithstanding the success of this region, global competition for business development and investments is becoming increasingly intense.

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At the regional and local levels, Edmonton faces a number of opportunities and challenges over which the City has a degree of control. One of the most critical aspects related to the economic competitiveness of the City is the marketability and availability of its industrial land base relative to the surrounding market area.

Macro-Economic Trends and Growth Drivers Influencing Development on Industrial Lands

The Alberta economy has experienced strong economic growth and contraction (as measured in GDP) over the past decade relative to the Country as a whole, largely driven by the energy sector. This has heavily influenced industrial market and development trends in the sector.

The Regional economy has generally out-performed Alberta, as a whole, with respect to annual employment growth over the past decade. Following a strong period of employment growth within the Edmonton Metropolitan Region over the 2011 to 2015 period, in 2016 employment growth slowed notably, largely as a result of job losses in key industrial and commercial sectors including energy, manufacturing, and wholesale and retail trade. These losses, however, have been offset by strong gains in employment in health care and social assistance, education services, and public administration, along with construction. The diversified nature of the Edmonton Metropolitan Region economy has helped mitigate the slowdown in employment growth experienced in Alberta as a whole, which had a notably more pronounced slowdown in employment growth during the same period. A modest rebound in employment growth occurred in the Edmonton Metropolitan Region in 2017, which accelerated through August 2018.

The City of Edmonton’s employment base has grown from approximately 388,670 jobs in 2001 to an estimated 534,750 jobs in 2018, an increase of approximately 38% over the 17-year period. Over the 2011-2018 period, Edmonton experienced significant employment growth in a number of industrial sectors such as utilities, transportation and warehousing, as well as the construction sector. All of the commercial sectors witnessed an increase in employment growth over this period, but the following sectors experienced a significant increase: finance, insurance and real estate; and professional, scientific and managerial. The City also experienced significant growth in the health and social services sector, education services, and government services. The only sector that experienced a decline during this time period was manufacturing.

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In accordance with the most current economic forecast, the Edmonton Census Metropolitan Area (CMA) is expected to experience a relatively constant and steady increase in the rate of GDP growth through 2028, ranging between 2.2 and 2.7% annually.

There are a number of factors that indicate economic growth within the Edmonton Metropolitan Region over the long-term will be relatively strong, building on the economic expansion experienced over the past decade. In turn, new non-residential development will generate continued demand for industrial land. These factors include:

 Long-Term Energy Sector Growth Potential – Long-term trends remain favourable for oil prices and production, largely based on continued demand in Asia; however, the long-term price of Western Canada Select (WCS) will be partly dependent on the ability to expand opportunities to ship oil to markets;  Diversification of Economy – Continued economic diversification provides opportunities for a broader range of non-residential development potential and employment prospects for Edmonton;  Strong Regional Long-Term Population and Employment Growth – The physical, socio-economic and geographic attributes of the Edmonton Metropolitan Region have produced a highly competitive and diverse regional employment market, which is expected to experience strong population and employment growth through 2044;  Major Infrastructure Projects – Edmonton has seen significant improvements to intra-regional connections with a number of further projects planned that are expected to improve the development and growth opportunities within the City over the short to medium term. This includes the completion of Anthony Henday Drive, Valley Line Light Rail Transit (LRT), the Yellowhead Trail freeway conversion, improvements to Highway 2, and continued growth and expansion of the Edmonton International Airport; and  Petrochemical and Basic Chemical Cluster – The Edmonton Metropolitan Region accommodates one of Canada’s key hydrocarbon processing and petrochemical clusters which offers unique growth opportunities for the City of Edmonton.

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During the past decade, there has also been significant structural change in the economy, which is altering the nature of economic activities and built form on industrial lands and impacting their character. In recent decades, the composition of industrial development in Alberta has evolved, with less emphasis on the traditional manufacturing sector. Industrial development has been increasingly oriented to large- scale industrial buildings housing wholesale trade, distribution and logistics. This has been driven by increasing demand in the Goods Movement sector to store and manage the distribution/transportation of goods produced locally as well as goods imported from abroad.

Prestige industrial lands1 are also accommodating a broader range of uses (i.e. commercial and institutional sectors). This includes office development and employment-supportive uses such as hotels, restaurants and ancillary retail. This development trend reflects the diversification that is occurring both in the macro and regional economies.

With a highly diverse economic base and the strong growth potential within the broader regional market, the City of Edmonton is well-positioned to leverage the non-residential development opportunities that exist, over the coming decade. Capitalizing on this growth potential, however, requires a balanced approach to longer-term planning to ensure the City of Edmonton continues to offer a sufficient supply of competitive industrial development opportunities that leverage the strength of energy-related and non-energy-related sectors, as well as the continued opportunities within knowledge- based sectors.2

Regional Industrial Market Analysis

The Edmonton Metropolitan Region has a large and diverse existing industrial base, totalling approximately 15,800 ha (39,000 acres), of which approximately 71% is urban in nature and represents largely light, medium and business industrial lands. The remaining 29% is rural and largely represents heavy industrial lands within Alberta’s

1 Prestige industrial lands are intended to accommodate primarily business park and light industrial uses and exhibit high development and design standards. 2 Refers to those industries that are relatively intensive in their inputs of technology and/or human capital, as defined by the OECD.

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Industrial Heartland. The City of Edmonton has the largest developed industrial lands base in the regional market area.

Over the past decade, industrial development activity in the Edmonton Metropolitan Region has been relatively robust, with some annual fluctuations based on broader economic trends. Despite the recent regional economic downturn, industrial development activity in the region was relatively strong in 2016 and 2017. The City of Edmonton’s share of the Region’s industrial development totalled 38% in 2011 to 2017, a slight increase from the 2006 to 2011 period.

Over the past five years, industrial land absorption in the Edmonton Metropolitan Region, outside of Alberta’s Industrial Heartland, averaged approximately 195 ha (475 acres) annually. Of industrial lands absorbed over the period, approximately 38% have been accommodated within the City of Edmonton. Since 2010, the City of Edmonton’s share of regional industrial land absorption has gradually declined. This shift is largely attributed to expanded industrial land development opportunities and market choice in municipalities outside Edmonton, most notably in Parkland County and the Leduc/Nisku area.

Industrial vacancy rates in the Edmonton Metropolitan Region have increased over the past few years and have now exceeded the highs reached in 2009 following the global economic downturn. Industrial vacancy rates in the City of Edmonton have historically been close to the Edmonton Metropolitan Region’s average and are currently 7.1%, more than double the rate observed in 2015. While industrial vacancy rates have declined slightly from highs reached in 2016, current industrial vacancy rates in the Edmonton Metropolitan Region and the City of Edmonton suggest that there is some excess capacity in industrial building space.

City of Edmonton Industrial Market Profile and Assessment

Over the 2006 to YTD 2018 period, expressed in GFA (gross floor area), Edmonton accommodated an average of 2.5 million sq.ft. of development on industrial lands annually over the period. The recent economic downturn in Alberta resulted in a major

Watson & Associates Economists Ltd. PAGE v Edmonton 2018 Investment Competitiveness Study decline in development activity in 2016 and 2017. Year-to-date 2018 development activity has been significantly stronger than in the previous two years. A notable share of recent development activity on industrial lands was accommodated through intensification of underutilized properties.

Over the 2011 to YTD 2018 period, a total of 617 net ha (1,525 net acres) of industrial lands were absorbed in the City of Edmonton. Based on a detailed review of current business licenses, an estimate of building space occupied by industry sector on the developed lands over the period was prepared. Wholesale trade accounts for almost one-third (32%) of building space, followed by construction (15%), transportation and warehousing (12%), manufacturing (11%), retail (8%), oil and gas support services (8%) and professional, scientific and technical services (5%).

The competitiveness of Edmonton’s export-based economy is partly determined by the availability and quality of its developable industrial lands. The City has 4,659 net ha (11,512 net acres) of vacant industrial land, marginally less than that identified in 2015. Based on a further review of the net vacant industrial land supply, it was determined that the City has 410 net ha (1,013 net acres) of shovel-ready industrial land. The City’s supply of shovel-ready land has increased moderately since 2015 but is 29% lower than in 2011.

Based on the employment sector requirements identified and the evaluation of Edmonton’s industrial areas, the following conclusions can be made regarding the potential for the City to accommodate forecast industrial growth:

 The South/Southeast and Northwest Industrial Districts are highly marketable for a wide range of industrial and non-industrial uses. Both areas offer sufficient supply opportunities to accommodate growth over the next decade;  Opportunities to accommodate further industrial development in the Northeast District are more limited; and  The Edmonton Energy and Technology Park (EETP) is competitive with respect to a broad range of light, medium and heavy industrial development and is expected to become an increasingly important component of Edmonton’s industrial lands portfolio over the coming decades.

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Regional Industrial Competitiveness and Investment Readiness Analysis

Edmonton is located within proximity to a number of large urban/suburban and rural municipalities with which it competes directly for business attraction and investment. With respect to industrial development, key municipalities with which Edmonton competes include Leduc County, Leduc City, Parkland County (Acheson), City of St. Albert, City of Fort Saskatchewan, Strathcona County and Sturgeon County.

At the local level, the competitiveness of Edmonton’s industrial lands is determined by a number of factors including, but not limited to, servicing standards, availability of vacant industrial lands as well as development and operating costs. These factors are explored herein.

The City of Edmonton has one of the largest total vacant industrial land inventories in the region, including the largest supply of vacant designated urban industrial land and the largest supply of shovel-ready land. Relative to recent industrial land absorption levels, however, the City of Edmonton has one of the lower shovel-ready land supplies to accommodate market demand.

On average, the City of Edmonton is less cost competitive than the comparator markets for industrial and commercial development. This is attributed largely to higher industrial land prices, higher off-site levies and higher property taxes than in comparator markets surveyed; however, the difference in cost varies widely by built form.1

The City’s industrial areas are typically developed to a high urban design and servicing standard relative to many of the industrial business parks within the surrounding market area. For this reason, development costs associated with industrial land prices and off- site levies and industrial property taxes are higher on average in the City of Edmonton than the surrounding municipalities surveyed within the Edmonton Metropolitan Region.

1 Includes permanent buildings and structures on the land.

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Edmonton is well-positioned to continue to attract a significant amount of development activity on industrial lands. The City, however, has the most limited shovel-ready industrial supply inventory of all the municipalities examined within the Edmonton Metropolitan Region relative to recent industrial absorption, which places it in a more unfavourable position from a market choice perspective.

Forecast Employment Growth and Industrial Land Needs, 2018 to 2028

Future demand for industrial lands within Edmonton is ultimately driven by forecast employment growth. A broad range of factors, as previously discussed, is anticipated to drive future employment growth in Edmonton over the next decade. These factors will not only impact the rate and magnitude of growth, but they will also influence the form and density of non-residential development and corresponding demand for industrial lands. Based on a comprehensive investigation of local and regional employment growth drivers and a review of recent economic trends, an updated long-term employment forecast by major sector has been developed. The incremental total employment growth over the 2018 to 2028 period is generally consistent with the latest employment projections provided in the Fall 2018 Economic Update prepared by the City of Edmonton.1

Over the 2018 to 2028 forecast period, the City’s employment base is expected to expand by approximately 21%, increasing to 572,500 jobs in 2023, and 635,200 jobs in 2028. This represents an average annual growth rate of 1.7% over the 10-year forecast period, lower than historical trends.

Employment growth over the 2018 to 2028 forecast period is expected across a wide range of sectors driven by continued diversity of the regional economic base and steady local population growth. Population growth is anticipated to drive the demand for population-related commercial and institutional employment in Edmonton. New residential and population-related development will also drive demand within the construction sector and influence investment across certain industrial sectors which are more closely driven by regional population growth (e.g. fulfilment centres, urban warehouses).

1 November 2018 Edmonton City Forecast, prepared by John Rose, Chief Economist, City of Edmonton.

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The share and rate of industrial employment growth are anticipated to be notably lower than over the previous decade. This is attributed to the lower growth prospects for the energy sector going forward and the continued diversification of the City’s economy to non-energy-related sectors. While the City’s economy is forecast to continue to steadily shift from goods-producing to services-producing sectors, the industrial sector is still anticipated to represent a key employment sector in Edmonton.

Building on the long-term employment forecast, anticipated industrial land needs were identified, as summarized below:

 The City of Edmonton is forecast to absorb an average of 74 net ha of industrial land per year (184 net acres per year) from 2018 to 2028 – slightly lower than industrial absorption levels recorded over the 2011 to 2017 period;  Over the 2018 to 2023 period, average industrial land absorption is expected to average 44 net ha (108 net acres) annually, significantly lower than the historical average. This decline in average annual industrial absorption is attributed to the current slowdown in the energy sector which is expected to continue to negatively impact industrial employment growth over the short term and corresponding industrial land demand.  Industrial land absorption levels are expected to rebound post-2021 with the gradual recovery of the energy sector and expanded market choice for industrial uses provided through the EETP;  Over the forecast period, 33% of City-wide industrial land demand is forecast to be accommodated in the Northwest District, 26% in the South/Southeast District, 35% in the EETP and 6% in the Northeast District; and  In accordance with the existing supply of developable vacant industrial lands versus long-term demand, the City of Edmonton has a sufficient supply of industrial lands to meet industrial land needs through 2028.

At a high level, the City of Edmonton appears to be reasonably well-positioned from a land-supply perspective to meet anticipated market demand for industrial lands over the 10-year forecast period. Greenfield land supply opportunities, however, are diminishing in the Northwest, South/Southeast and Northeast Districts and the City will need to prepare to service remaining greenfield areas, including Winterburn and Maple Ridge, to accommodate future growth.

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On an Edmonton Metropolitan Region-wide level, the City of Edmonton’s overall share of light/medium industrial land absorption is expected to decline from approximately 45% over the 2011 to 2018 period to 41% over the 2018 to 2028 period.

This loss in market share is attributed to Edmonton’s declining share of the industrial land market in the Northwest and South/Southeast Districts, driven by neighbouring municipalities that offer significant market choice of industrial lands at cost competitive prices. This is only partly offset by the EETP which is expected to be a dominant player in the light/medium industrial market in the Northeast District. With respect to the heavy industrial market, the EETP represents a competitive expansion area for Edmonton, capturing a significant share of the Edmonton Metropolitan Region’s heavy industrial development potential.

Strategic Directions and Recommendations

Over the past decade, the Edmonton Metropolitan Region has attracted a diverse range of industrial development and the City of Edmonton has historically had a robust and active market for light, medium and business industrial development. While structural changes in the global economy over the past decade have resulted in a significant evolution of development trends on industrial lands, Edmonton has been highly successful at meeting industry needs and attracting growth sectors. The economic downturn in Alberta since 2015, however, has changed the industrial market landscape in a more negative direction, resulting in a notable slowdown in development activity and industrial land absorption across the Edmonton Metropolitan Region. With its relatively diverse economic base, the City of Edmonton is less dependent on the energy sector to drive and influence industrial development compared to the rest of the Edmonton Metropolitan Region. Similar to the Region as a whole, however, the City has been negatively impacted by the recent economic downturn.

An increasingly competitive regional landscape combined with on-going challenges in the provincial economy related to the energy sector are creating significant economic growth headwinds for the industrial sector in the short to medium term within Edmonton. This requires the City of Edmonton to be increasingly responsive and adaptive to changing industry needs and disruptive forces.

Despite the immediate challenges, long-term growth prospects remain positive. The Region is expected to accommodate significant population and employment growth over

Watson & Associates Economists Ltd. PAGE x Edmonton 2018 Investment Competitiveness Study the next 30 years, including strong demand in the light and medium industrial market. Industrial lands are expected to continue to form a key component of the City of Edmonton’s economic structure. Looking forward over the next decade, employment growth within the City’s Industrial Districts will ultimately be driven by demand from a broad range of goods-producing, knowledge-based and employment-supportive sectors. The increased demand for light and medium industrial land across the broader Edmonton Metropolitan Region offers opportunities for Edmonton to focus on improving its competitiveness and maintaining a significant share of anticipated regional development activity and corresponding employment growth.

The following recommendations build on this broader goal of increasing Edmonton’s competitiveness, and offer insights into the ways in which the City can better position itself to attract and accommodate non-residential development on industrial lands. Each strategic recommendation outlines the current issues and opportunities associated with it, as well as policy or process-based actions for the City of Edmonton to consider in its longer-term land-use and economic development planning activities.

1. Plan for Industrial Areas within the Context of the Evolving Economy

It is recommended that the City provide policy direction in the City’s MDP to outline the goals and objectives related to employment-supportive uses in industrial areas (e.g. non-industrial, non-office uses should be of limited scale, or focused on serving local businesses and employees). It is further recommended that the City promote employment opportunities in Transit-Oriented Development Areas.

2. Address Market Choice Gaps in Light and Medium Industrial Areas

Key challenges in terms of market choice regarding existing supply, which could be addressed by the City, include:

 Encouraging the development of larger (five acres and above) medium industrial parcels, to broaden market choice for industry sectors; and  Addressing levels of service standard deficiencies in the Winterburn area to enhance the marketability of the area for future industrial development.

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3. Regularly Monitor Industrial Land Needs

Effectively accommodating industrial land development over the longer term requires the implementation of programs and mechanisms to accurately receive, catalogue and assess industrial development information, as well as to assess the available supply of industrial lands within the City.

4. Explore Opportunities for Additional Intensification within Industrial Areas

A number of industrial sites have been identified as having future intensification potential which should be explored further.

5. Develop a General Marketing Strategy to Promote and Develop the City’s Industrial Districts

To ensure the success of Edmonton’s Industrial Districts, marketing efforts must be geared towards both the broader strengths of the City as well as specific target sector investment attraction efforts.

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Report

1. Introduction 1.1 Terms of Reference

Watson & Associates Economists Ltd. (Watson) was retained by the City of Edmonton to prepare an Investment Competitiveness Study for the City. The assignment provides an update to the 2015 City of Edmonton Investment Competitiveness Study with a revised analysis of industrial market conditions, short-term and longer-term industrial supply opportunities, and forecast market demand for industrial lands within a local and regional context.

The study is intended to help inform the City’s Industrial Investment Action Plan, which is focused on developing solutions in growing Edmonton’s non-residential tax base. The nine-point plan includes a number of actions which include addressing industrial investment readiness within the City’s existing and planned industrial areas within the context of a competitive regional market.

The intent of this report is to provide the City with a comprehensive assessment of current market conditions, target sectors on industrial lands, market readiness and competitiveness, as well as projected industrial land needs over the next decade. This information will help inform the City in establishing recommended industrial segments in which to target attraction activities and increase development potential on industrial lands. This study will also serve as a resource for reviewing existing taxation policies, development regulations and engineering standards.

1.2 Context

Municipalities compete directly for business attraction with other communities in their respective regional market areas and beyond. This is particularly true for “export- based” sectors in the industrial and knowledge-based1 sectors which are largely accommodated on industrial lands. Municipalities have a role to play in promoting economic growth by ensuring that they are “business investment ready” and “competitive.” In an increasingly competitive macro environment, municipalities need to

1 Refers to those industries which are relatively intensive in their inputs of technology and/or human capital, as defined by the OECD.

Watson & Associates Economists Ltd. PAGE 1 Edmonton 2018 Investment Competitiveness Study better position themselves to capitalize on the economic potential and opportunities that exist.

Having a comprehensive understanding of a municipality’s competitive position compared to other communities in the surrounding market area is a fundamental aspect of economic development. One of the challenges in addressing municipal competitiveness is the range of factors to consider, as illustrated in Figure 1. This includes a range of “hard” and “soft” factors. Many competitiveness factors are national/ provincial in nature on which the City of Edmonton has limited influence. This includes such factors as the regulatory environment, dollar exchange rate, corporate taxation, and labour costs. There are, however, a range of regional, community and site-level factors specific to the municipality and ones over which the City has some influence or control.

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Figure 1 Municipal Competitiveness Factors

National/Provincial Level Regional Level

 Local industry clusters  Regulatory environment  Access to markets  Dollar exchange rate  Access to Regional labour force pool  Corporate taxation  Quality of infrastructure and distribution  Political stability networks  Geographic Attributes  Utility costs (electricity, heating, water)  Labour costs (wage rates, benefits)

Competitiveness Factors Community Level Site Level  Locational attributes  Major infrastructure access (major highways,  Availability of developable industrial and intermodal facilities, airports) commercial lands  Local labour force  Investment readiness of Employment Areas  Development opportunities  Quality and suitability of building space  Development costs (land prices, off-site levies)  Access/circulation  Property taxes  Development standard  Market rents and availability of building space  Quality of life  Local business environment

Over the past decade, the Edmonton Metropolitan Region1 has been one of the fastest growing Cities/Regions in North America. With a robust economy and diverse mix of export-based employment clusters, the Edmonton Metropolitan Region is highly attractive. Notwithstanding the success of this region, global competition for business development and investments is becoming increasingly intense in today’s “new economy.”

In many respects the City of Edmonton’s long-term economic growth potential is largely tied to the success of the Edmonton Metropolitan Region as a whole. At the regional and local levels, Edmonton also faces a number of opportunities and challenges over which the City has a greater degree of control. One of the most critical aspects related

1 The Edmonton Metropolitan Region is a conglomeration of 35 municipalities centred around the City of Edmonton with a geographic area generally consistent with the Edmonton CMA. In addition to the City of Edmonton, it includes the neighbouring municipalities of Strathcona County, Leduc County, City of Leduc, Parkland County, City of Spruce Grove, Town of Stony Plain, City of St. Albert, Sturgeon County and the City of Fort Saskatchewan.

Watson & Associates Economists Ltd. PAGE 3 Edmonton 2018 Investment Competitiveness Study to the economic competitiveness of the City is the marketability and availability of its industrial land base relative to the surrounding market area.

Edmonton is located within proximity to a number of large urban/suburban and rural municipalities with which it competes directly for business attraction and investment. All of these municipalities generally offer regional attributes that largely appeal to prospective international and local firms. Hence, community level factors can strongly influence business location decisions, both for new development and expansion. Market competitiveness is typically influenced by the following broad community level criteria:

 “hard” factors – development costs (e.g. land costs, construction costs) and operating costs (e.g. property taxes, utilities’ costs); and  “soft” factors – proximity and access to major infrastructure; labour force; access to post-secondary institutions; availability of developable land; quality of life.

In addition to the location factors discussed above, location preferences at the industrial area level or local site level are largely influenced by:

 the market choice of developable land in terms of site size, configuration, access, zoning, surrounding land uses and future expansion potential;  the quality and suitability of the vacant building space inventory; and  the character of the industrial area and compatibility with surrounding land uses.

The industrial market is strongly influenced by these selection factors – investors typically have a broad geography to select from. This is examined in detail within the Edmonton context herein.

1.3 Data Sources

The analysis presented herein utilizes the latest data available to the Consultant at time of reporting. This includes employment data provided through Statistics Canada 2016 Census Place of Work Data, Statistics Canada 2017 annual Labour Force Survey (LFS) data, and the City of Edmonton Spring 2018 Employment by Industry data as prepared by the Office of the Chief Economist.

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2. Macro-Economic Trends Influencing Development on Industrial Lands

The following provides an overview of recent macro-economic trends which are anticipated to influence future growth trends on industrial lands within the City of Edmonton and the broader regional market over the coming decades. This chapter also includes an analysis of the regional growth drivers that are expected to impact the amount, type and location of future employment growth on industrial lands within Edmonton, relative to the surrounding municipalities within the regional market area.

2.1 Provincial and Regional Context

The Gross Domestic Product (GDP) in the Province of Alberta exhibited a high rate of growth between 2010 and 2014 (approximately twice that of the national average), as shown in Figure 2. A significant share of Alberta’s economic growth during this time was driven by the energy sector. Over the period, unprecedented global demand for oil led to expanded provincial production and development activity, through significant capital investment in this sector. That growth, however, has been followed by a rapid decline. Alberta’s GDP is estimated to have contracted by 3.6% in 2015 and by 3.7% in 2016 due to the recent downturn in the energy sector and the provincial economy, which has underperformed compared to Canada as a whole. In 2017, Alberta’s economy sharply rebounded, with an expansion in GDP of 4.7%, out-performing the national economy. Over the 2018 to 2019 period, Alberta is expected to experience modest GDP growth of 2.2% and 2.1%, respectively, marginally higher than Canada as a whole.

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Figure 2 Alberta and Canada Annual Real GDP Growth, 2009 to 2019 Alberta and Canada Annual Real GDP Growth

8.0

5.7 6.0 4.9 4.5 4.5 4.8 3.8 4.0 3.4 3.0 3.0 2.5 2.2 1.9 2.0 2.0 1.8 2.1 2.0 1.4 0.9

0.0

-2.0

Annual Annual G.D.P. Growth(%) -2.7 -4.0 -3.6 -3.7 -4.1 -6.0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f 2019f Year Canada Alberta Source: Derived from BMO Capital Markets Provincial Outlook, May 2018 by Watson & Associates Economists Ltd., 2018.

The energy sector plays a significant role in Alberta’s economy, accounting for 28% of the Province’s GDP.1 Other major sectors are largely attributed to the service industry, including finance and real estate, business and commercial services, and retail and wholesale trade. Notable industrial sectors include construction, manufacturing, and transportation and utilities.

Over the past decade, the provincial economy has become more diversified and less concentrated in goods-producing sectors related to manufacturing and energy. In contrast, services-producing sectors, including business and commercial services (i.e. professional services, business support and administration, construction, and finance and insurance), as well as health and social services, have experienced strong increases in GDP share over the same time period.

1 Data from Alberta Government Economic Dashboard, which is adapted from Statistics Canada, CANSIM table 379-0030 (Gross Domestic Product at basis prices).

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Figure 3 Province of Alberta Shift in Provincial GDP 2008 and 2017

12.0%

8.9% 9.0% 8.0% 8.1% 7.9% 7.3% 6.7% 5.7% 5.8% 5.9% 6.0% 5.1% 4.9% 4.0% 4.2% 4.6% 3.7% 3.8% 2.9% 2.9% 3.0% 2.3% 1.3%

0.0%

-0.7% -0.8% Employment -0.8% -3.0% -0.3%

-3.9% -3.6% -6.0% -5.3%

-7.7% -7.8% -9.0%

-10.5% -12.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Year Provincial Total Goods-Producing Sectors Services-Producing Sectors Source: Derived from Statistics Canada CANSIM 36-10-0402-01 (formerly CANSIM 379-0030), 2008 to 2016, by Watson & Associates Economists Ltd., 2018.

2.1.1 Edmonton Metropolitan Region Employment Trends and Cluster Analysis

The Edmonton Metropolitan Region has a strong and diversified economy. In terms of employment share, key industrial employment sectors within the Edmonton Census Metropolitan Area (CMA) include construction, manufacturing and transportation and warehousing, as illustrated in Figure 4 . In addition, the economic region is comprised of a number of established or emerging knowledge-based sectors, including educational services; health care and social services; public administration; professional, scientific and technical services; finance, insurance, real estate and leasing; as well as business, building and other support. Strong population growth has also fueled steady growth in retail and wholesale trade, as well as accommodation and food services.

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Figure 4 Edmonton C.M.A. Employment Structure, 2017

Forestry, fishing, mining, Agriculture quarrying, oil and gas Utilities 0.7% 2.9% 1.4% Information, culture and Business, building and recreation other support services 3.2% 3.5%

Finance, insurance, real Wholesale and retail trade estate, rental and leasing 15.4% 5.1%

Other services (except public administration) 5.3%

Health care and social assistance Manufacturing 12.6% 5.4%

Public administration 5.9%

Construction 11.9% Accommodation and food services 6.0% Professional, Educational scientific and services Transportation and technical services 7.3% warehousing 7.3% 6.2% Source: Data derived from Statistics Canada Table 14-10-0098-01 - Employment by industry, annual, Census Metropolitan Area by Watson & Associates Economists Ltd., 2018.

The Regional economy, as represented by the Edmonton CMA has generally out- performed Alberta, as a whole, with respect to annual employment growth over the past decade. Following a strong period of employment growth within the Edmonton Metropolitan Region over the 2011 to 2015 period, in 2016 employment growth slowed notably, largely as a result of job losses in key industrial and commercial sectors including energy, manufacturing, and wholesale and retail trade. These losses, however, have been offset by strong gains in employment in health care and social assistance, education services, and public administration, along with construction. The diversified nature of the Edmonton Metropolitan Region economy has helped mitigate the slowdown in employment growth experienced in Alberta as a whole, which had a notably more pronounced slowdown in employment growth during the same period. A modest rebound in employment growth occurred in the Edmonton Metropolitan Region in 2017. Employment growth accelerated through August 2018, with an increase of 3.8% for year-to-date (YTD) 2018.

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Figure 5 Edmonton CMA Employed Labour Force 2008 to 2017

45,000 8.0% 39,900 40,000 7.0%

35,000 6.0% 6.2% 30,000 26,100 27,000 5.0% 25,000 21,700 4.0% 4.2% 20,000 4.0% 16,700 16,200 3.0% 15,000 3.1% 2.0% 10,000 2.3% 2.2% 1.0%

5,000 3,000 Annual Growth (%) Rate Annual -500 -4,000 100 0 0.0% -0.1% 0.0% 0.4%

Total Employed Force Employed GrowthLabour Total -1.0% -5,000 -0.6% -10,000 -2.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Year Total Employment Growth Rate Source: Edmonton C.M.A. data derived from Statistics Canada Table 14-10-0098-01, Province of Alberta data derived from Statistics Canada Table 14-10-0023-01 by Watson & Associates Economists Ltd., 2018.

Figure 6 illustrates the employment change by industry sector over the 2011 to 2017 period in the Edmonton Metropolitan Region. As shown, employed labour force growth rates have been highest in a number of key sectors including: utilities; transportation and warehousing; construction; finance, insurance, real estate and rental/leasing; health care and social assistance; professional, scientific and technical services; and educational services. In contrast, manufacturing has seen a significant decline in recent employed labour force size.

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Figure 6 Edmonton Metropolitan Region Annual Average Employment Growth by Sector, 2011 to 2017

Utilities 13.9%

Transportation and warehousing 6.0%

Professional, scientific and technical services 3.8%

Finance, insurance, real estate, rental/leasing 3.7%

Health care and social assistance 3.3%

Construction 3.2%

Agriculture 3.0%

Educational services 2.2%

Public administration 1.8%

Other services (except public administration) 1.4%

Business, building and other support services 1.4%

Forestry, fishing, mining, quarrying, oil and gas 1.1%

Accommodation and food services 0.9%

Wholesale and retail trade 0.6%

Information, culture and recreation -1.2% Edmonton C.M.A. Manufacturing Average -3.5% 2.0% -5.0% 0.0% 5.0% 10.0% 15.0% Annual Growth Rate (2011-2017)

Source: Derived from Statistics Canada Table 14-10-0098-01 by Watson & Associates Economists Ltd.

2.2 City of Edmonton Economic Structure

2.2.1 Employment Base and Industry Clusters

As illustrated in Figure 7, the City of Edmonton’s employment base is highly oriented to commercial and institutional sectors. The largest, health care and social assistance, accounts for 15% of total employment, followed by retail trade (13%), public administration (8%), educational services (8%), and professional, scientific and technical services (8%). The share of employment in the industrial sectors is more limited.

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Figure 7 City of Edmonton Employment Base, 2016

Transportation and Administrative and support, warehousing waste management and 4% remediation services Finance and insurance 3% 4% Health care and Wholesale trade social assistance 5% 15% Other services (except public administration) 5% Retail trade Manufacturing 13% 6%

Public Construction administration 6% 8%

Professional, scientific and Educational Accommodation technical services services and food services 8% 8% 8%

Source: Data from Statistics Canada Place of Work for 2016 by Watson &Associates Economists Ltd., 2018. Note: Employment figures include usual place of work and work at home.

Figure 8 illustrates the strength of employment sectors in the City of Edmonton relative to the Province using Location Quotients (LQ).1 As shown, there is only one industrial sector in Edmonton’s economy that is highly concentrated, which is wholesale trade. The City of Edmonton also has a relatively high concentration of employment in commercial and institutional sectors including retail trade, accommodation and food services, information and cultural industries, finance and insurance and government services. In contrast, the City of Edmonton has a relatively low concentration of

1 An LQ of 1.0 identifies that the concentration of employment by sector is consistent with the broader employment base average. An LQ of greater than 1.0 identifies that the concentration of employment in a given employment sector is higher than the broader base average, which suggests a relatively high concentration of a particular employment sector or “cluster.”

Watson & Associates Economists Ltd. PAGE 11 Edmonton 2018 Investment Competitiveness Study employment in a number of primary sectors such as agriculture, forestry, fishing and hunting; and mining and oil and gas extraction.

Figure 8 City of Edmonton Location Quotients by Sector Relative to Alberta, 2016

Public administration 1.42 Finance and insurance 1.23 Wholesale trade 1.22 Health care and social assistance 1.17 Information and cultural industries 1.17 Educational services 1.14 Real estate and rental and leasing 1.09 Professional, scientific and technical services 1.04 Other services (except public administration) 1.03 Utilities 1.02 Retail trade 1.01 Admin. and support, waste mgmt. and rem. services 1.00 Accommodation and food services 1.00 Construction 1.00 Manufacturing 0.99 Arts, entertainment and recreation 0.89 Transportation and warehousing 0.85 Management of companies and enterprises 0.52 Mining and oil and gas extraction 0.20 Agriculture, forestry, fishing and hunting 0.07 -0.20 0.30 0.80 1.30 1.80 Location Quotient Source: Derived from Statistics Canada Place of Work data for 2016 by Watson & Associates Economists Ltd., 2018.

2.2.2 City of Edmonton Employment Growth Trends

Edmonton’s employment base has grown from approximately 388,670 jobs in 2001 to an estimated 534,750 jobs in 2018, an increase of approximately 38% over the 17-year period, as illustrated in Figure 9. The City experienced relatively strong employment growth between 2001 and 2006, increasing by 15%. Since then, Edmonton has experienced moderate employment growth expanding by 10% from 2006 to 2011, and 7% from 2011 to 2016.

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Figure 9 City of Edmonton Employment Base, 2001 to 2018

600,000 528,095 534,750 492,965 500,000 447,700

400,000 388,665

300,000

Total Employment Total 200,000

100,000

0 2001 2006 2011 2016 2018 Year Source: Watson & Associates Economists Ltd., 2018.

Figure 10 summarizes the change in employment over the 2011 to 2018 period by sector in the City of Edmonton. As summarized, Edmonton experienced significant employment growth in a number of industrial sectors such as utilities, transportation and warehousing, as well as the construction sector. All of the commercial sectors witnessed an increase in employment growth over this period, but the following sectors experienced a significant increase: finance, insurance and real estate; and professional, scientific and managerial. The City also experienced significant growth in the health and social services sector, education services, and government services. The only sector that experienced a decline during this time period was manufacturing.

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Figure 10 City of Edmonton Employment Growth by Sector, 2011 to 2018

2.2.3 City of Edmonton Business Growth Trends

Figure 11 summarizes the change in the number of businesses operating in the City of Edmonton by sector over the 2011 to 2016 period. As shown, the City of Edmonton has experienced relatively strong business growth in a number of industrial sectors including transportation and warehousing, and construction, but relatively modest business growth in manufacturing, wholesale trade, and mining and oil and gas extraction.

The City has experienced relatively strong business growth in a number of service and knowledge-based sectors including: real estate and rental and leasing; professional, scientific and technical services; accommodation and food services; health care and social assistance; and educational services.

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Figure 11 City of Edmonton Change in Number of Business Establishments by Sector, 2011 to 2016

Transportation and warehousing 63%

Construction 30%

Real estate and rental and leasing 22%

Professional, scientific and technical services 16%

Accommodation and food services 16%

Health care and social assistance 14%

Admin. and support, waste mgmt. and rem. services 14%

Educational services 13%

Utilities 13%

Retail trade 9%

Arts, entertainment and recreation 9%

Mining and oil and gas extraction 6%

Public administration 5%

Finance and insurance 2%

Manufacturing 2%

Information and cultural industries 1%

Wholesale trade 1%

Management of companies and enterprises 0%

Other services (except public administration) -10%

Agriculture, forestry, fishing and hunting -17%

-40% -20% 0% 20% 40% 60% 80% Change in Number of Businesses, 2011 to 2016 Source: Data from Statistics Canada, Canadian Business Counts, 2011 and 2016 by Watson & Associates Economists Ltd., 2018.

2.2.4 Edmonton CMA GDP Growth

Figure 12 illustrates Edmonton CMA’s historical annual GDP growth from 2013 to 2017, as well as forecast growth through 2028. In 2013 and 2014, the Edmonton CMA experienced relatively strong GDP growth of 4.1% and 3.5%, respectively. In 2015 and 2016, the Edmonton CMA experienced a contraction in GDP due to the economic downturn in the provincial economy. This was followed in 2017 by a rebound in GDP growth of 3.2%. In accordance with the City of Edmonton’s most current economic forecast, the Edmonton CMA is expected to experience a relatively constant and steady increase in the rate of GDP growth through 2028, ranging between 2.2 and 2.7% annually.

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Figure 12 Edmonton CMA Annual GDP Growth, Historical and Forecast

4.1 4 3.5

3 2.6 2.6 2.7 2.5 2.5 2.5 2.5 2.4 2.2 2.3 2.3 1.9 2

Annual Annual G.D.P. Growth (%) -0.2

-1 -0.8

-2 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Historical Forecast Source: Data from the City of Edmonton Chief Economist by Watson & Associates Economists Ltd.

2.2.5 City of Edmonton Competitive Share Analysis

To assess the relative strength of business growth within the City of Edmonton, the business growth rate by industry sector over the 2011 to 2016 period in the City, relative to the region-wide average (i.e. the Edmonton Metropolitan Region), is examined in Figure 13. This comparative share analysis helps identify how much faster or slower businesses are growing in the City of Edmonton relative to the Edmonton Metropolitan Region as a whole, by sector. Business sectors that generate a strong positive value suggest areas where the City of Edmonton potentially has a competitive advantage relative to the surrounding Edmonton Metropolitan Region municipalities with respect to business growth. On the other hand, business sectors that exhibit a negative value suggest areas where the City of Edmonton may be at a competitive disadvantage to its neighbouring municipalities.

As illustrated in Figure 13, a number of sectors have exhibited a significantly stronger rate of business growth relative to the surrounding municipalities in the Edmonton Metropolitan Region. These include real estate and rental and leasing, construction, accommodation and food services, professional, scientific and technical services, health care and social assistance, and transportation and warehousing. Over the same period,

Watson & Associates Economists Ltd. PAGE 16 Edmonton 2018 Investment Competitiveness Study the City of Edmonton has attracted businesses at a significantly slower rate within management of companies and enterprises, public administration, other services (except public administration), utilities, wholesale trade, and retail trade sectors, when compared to the rest of the Edmonton Metropolitan Region.

Figure 13 City of Edmonton Competitive Share Growth Analysis Relative to the Edmonton Metropolitan Region (excluding City of Edmonton), 2011 to 2016

Real estate and rental and leasing 24%

Construction 21%

Accommodation and food services 19%

Professional, scientific and technical services 13%

Health care and social assistance 12%

Transportation and warehousing 12%

Arts, entertainment and recreation 11%

Information and cultural industries 9%

Educational services 7%

Manufacturing 6%

Admin. and support, waste mgmnt. and rem. services 5%

Finance and insurance 4%

Mining and oil and gas extraction 3%

Agriculture, forestry, fishing and hunting 1%

Retail trade -4%

Wholesale trade -4%

Utilities -6%

Other services (except public administration) -8%

Public administration -15%

Management of companies and enterprises -21%

-30% -20% -10% 0% 10% 20% 30% Competitive Share (Expressed in business formation growth, 2011 to 2016)

Source: Statistics Canada, Canadian Business Counts, 2011 to 2016 by Watson & Associates Economists Ltd., 2018. Note: Comparison between City of Edmonton versus the rest of the municipalities in the Edmonton Metro Region.

On a sub-sector level, the City of Edmonton has experienced relatively strong business growth in the following sectors over the 2011 to 2016 period, based on a review of business count data trends:

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 Construction of buildings;  Heavy and civil engineering construction;  Specialty trade contractors;  Food manufacturing;  Truck transportation;  Real estate;  Professional, scientific and technical services;  Ambulatory health care services; and  Food services and drinking places.

2.3 Regional Economic Growth Drivers

2.3.1 Long-Term Energy Sector Growth Potential

As shown by the composition of the provincial economy and by economic growth trends, investment in the Edmonton Metropolitan Region is strongly tied to the energy sector.

The Edmonton Metropolitan Region serves as a major goods and services staging point for production within the Athabasca, Peace River and Cold Lake oil sands. Further, it has a strong economic base in refined petroleum products and petrochemical products, bitumen upgrading and spinoff sectors such as metal fabrication, construction, and business, technical and financial services.

Oil price trends for West Texas Intermediate (WTI) and Western Canada Select (WCS) are illustrated in Figure 14. As shown, since hitting a peak of $106 per barrel (WTI) in mid-2014, oil prices declined by nearly 70% to a price of $30 per barrel in mid-January,

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2016. Since then, WTI oil prices have rebounded but have been highly volatile, and the price is $53 per barrel as of early December 2018.1

Until recently the price for WCS had followed a similar trend to WTI except subject to a widening discount price. In September 2018, the price of WCS was approximately $40 per barrel, a discount of about 43% over WTI.2 However, due to limited market opportunities and on-going transportation constraints, WCS has fallen to $28 per barrel as of mid-December 2018.3

Despite the short-term challenges in the oil market, long-term trends remain favourable for oil prices and production, largely based on continued demand in Asia. The global demand for oil is expected to be robust through 2025 and without significant increases in U.S. shale production to meet demand, there is a high probability that the market will sharply tighten over the period.4 The price outlook for oil is pivotal to oil sands production, which is more expensive than conventional oil to produce. Over the short term, oil prices are expected to gradually recover. Over the longer term, the WTI oil price is forecast to increase to $69 per barrel in 2020, $82 per barrel by 2026 and $103 by 2040, as illustrated in Figure 14. In comparison, the price of WCS is expected to recover, with an increase to $66 per barrel by 2026 and the price differential with WTI is expected to remain over the period, as Alberta oil producers are faced with transportation capacity constraints with respect to getting products to market. The long- term price of WCS will be partly dependent on the ability to expand opportunities to ship oil to markets via pipeline (e.g. Keystone XL and Trans Mountain) and/or by rail.

The recent decline in oil prices negatively impacted economic growth in Alberta in 2015 and 2016. The relatively low price of oil is expected to continue to affect GDP growth in Alberta in the short term. The current volatility in the oil market is likely to subdue investment until a direction is determined. To help address the current market challenges in the energy sector, the Province of Alberta has been active in promoting diversification within the energy sector.

1 US Energy Information Administration, WTI – Cushing, Oklahoma Spot Price, average for week ending December 7, 2018. 2 Government of Alberta Economic Dashboard, https://economicdashboard.alberta.ca/ OilPrice, access November 11, 2018. 3 https://oilprice.com, accessed December 15, 2018. 4 International Energy Agency, World Energy Outlook, 2018.

Watson & Associates Economists Ltd. PAGE 19 Edmonton 2018 Investment Competitiveness Study

Figure 14 Historical and Long-Term Outlook for WTI and WCS Oil Price

$120 $110 $110 $101 $100 $98 $100 $90 $83 $80 $78 $62 $67 $70 $66 $64 $61 $57 $60 $80 $52 $51 $50 $52 $40 Price per (U.S.D.) Barrel $40 $43 $39 $30 $36 $30

$20

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 Year WTI Historical WTI Forecast WCS Historical WCS Forecast Source: WTI historical data from U.S. Energy Information Administration (2009 to present). WCS historical data from Alberta Energy (2009 to present). Short term WTI forecast 2019 based on Short-Term Energy Outlook, August 2018 and CME Group by EIA, Long term WTI forecast 2019-2050 reflects reference scenario from EIA Annual Energy Outlook, 2018 (Price per barrel for WTI in 2017 dollars). WCS forecast data from Alberta Engery Regulator, July 2017. Data compiled by Watson & Associates Economists Ltd.

Despite the current volatility in oil prices and changes in the regulatory environment, oil production in Alberta is expected to increase, albeit at a lower growth rate than forecast prior to the recent downturn in the price of oil. With oil prices expected to continue trending upwards over the longer term, there is a basis for continued investment in oil sands production and production technology advancement. Oil sands production is forecast to increase to 3.8 million barrels per day by 2030, an increase of 44% from 2017 levels, as illustrated in Figure 15. While the short-term growth outlook is relatively robust, the longer term (i.e. 2020 to 2030) production forecast is more moderate. The long-term forecast has been downgraded slightly from that reported in 2015, as illustrated in Figure 15.

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Figure 15 Alberta Oil Sands Production, 2005 to 2030

4,500 3,953

4,000 3,816

3,473 3,500 3,332 3,216

3,000 2,647 2,500

2,000

1,486 1,500

Oil Production (000s day) Production Barrels Oil per 975 1,000

500

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Historical Production Forecast Production Previous Forecast (June 2015)

Source: Adapted from CAPP Canadian Crude Oil Production Forecast, June 2018 and June 2017 by Watson & Associates Economists Ltd.

2.3.2 Diversification of Economy

Continued economic diversification provides opportunities for a broader range of non- residential development potential and employment prospects for Edmonton.

Edmonton’s position as the supply and service centre for the provincial energy industry, along with being the provincial seat of government and centre for education and health, has contributed to the emergence of a highly diverse regional economy.1

2.3.3 Strong Regional Long-Term Population and Employment Growth

With a robust economy and a diverse mix of export-based employment sectors, the Edmonton Metropolitan Region is highly attractive on an international level to new businesses and investors. Over the past decade, the Edmonton Metropolitan Region has been particularly attractive to the energy sector given its proximity to the Athabasca Region (Fort McMurray area, located 400 km northeast of Edmonton), which currently represents the majority of oil sands production in Alberta. The Edmonton Metropolitan Region has a strong appeal given the area’s regional infrastructure (i.e. the Edmonton International Airport (EIA), provincial highways, inter-modal facilities, etc.), access to

1 City of Edmonton Economic Development Plan – Technical Report, Millier Dickinson Blais.

Watson & Associates Economists Ltd. PAGE 21 Edmonton 2018 Investment Competitiveness Study skilled and unskilled labour and potential synergies associated with post-secondary institutions.

The vibrant and high quality of life that the Edmonton Metropolitan Region offers is an important factor that attracts investors and workers to the area. With access to a wide range of indoor and outdoor recreational opportunities, arts and cultural facilities, public and private schools, amenities (e.g. shopping, dining, health care, personal services) and tourism destinations within the surrounding region, the regional housing market in the Edmonton Metropolitan Region appeals to all major demographic groups (i.e. young adults, families, empty-nesters and seniors).

The physical, socio-economic and geographic attributes of the Edmonton Metropolitan Region have produced a highly competitive and diverse regional employment market. As a result, all the municipalities across the Edmonton Metropolitan Region have been successful to varying degrees in attracting a variety of industries within a broad range of industrial, office, retail and institutional sectors. In turn, this continues to support steady population and housing growth within the City of Edmonton and surrounding municipalities within the Edmonton Metropolitan Region, largely driven by international and inter-provincial net migration to this region.

The Edmonton Metropolitan Region has an estimated population of approximately 1.2 million (as of 2014), with population expected to grow to between 1.9 million and 2.2 million by 2044.1 Similarly, the Edmonton Metropolitan Region’s current employment base of approximately 725,500 in 2014 is expected to climb to 1,197,300 by 2044, an increase of 65%.2

2.3.4 Major Infrastructure Projects

Edmonton has seen significant improvements to intra-regional connections with a number of further projects planned that are expected to improve the development and growth opportunities within the City over the short to medium term.

 The Anthony Henday Drive extension represents one of the most significant major transportation projects for the Edmonton Metropolitan Region. The northeast extension was completed in November 2016. It has greatly enhanced

1 Schedule 1, Edmonton Metropolitan Region Growth Plan, October 2016. 2 Ibid.

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the movement of people and goods, and provides better access to industrial parks in the northeast area of the Region, including the Northeast Industrial District and Edmonton Energy and Technology Park in Edmonton.  Valley Line Light Rail Transit (LRT) is a 27-km line that will connect Mill Woods in southeast Edmonton to Lewis Farms in west Edmonton. The first phase of this project connects southeast Edmonton (Lewis Farms) to the downtown area (102 Street) and is currently under construction. This first phase of the LRT will have a transit centre, Davis Station, and will pass through several industrial corridors. The second phase is to continue the LRT from the downtown area and connect 102 Street to Mill Woods in west Edmonton.  The Yellowhead Trail freeway conversion is another large infrastructure project the City of Edmonton is currently undertaking. Approximately 63,000 to 81,000 vehicles use Yellowhead Trail every day and it is expected that this number will continue to grow. The upgrade of the Yellowhead Trail into a freeway is expected to relieve current congestion, but also create a safer and more free- flowing traffic system. The freeway conversion will begin in 2019 and it is expected to be completed by 2026/2027.  Highway 2 improvements are planned for a 23-km segment of Highway 2 from south of Leduc to north of Ellerslie Road in Edmonton. These proposed improvements include constructing a dual freeway system, new interchanges, upgrades to existing interchanges, and reconstruction of the section of highway through Leduc.1 These improvements are expected to improve access and circulation to industrial areas in south Edmonton.

2.3.5 Edmonton International Airport (EIA)

The EIA is the fifth busiest in Canada in terms of passenger traffic, with 7.8 million commercial passengers in 2017.2 The airport is also the largest major airport in Canada as measured by land mass, spanning just under 7,000 acres.3 The airport is a

1 Province of Alberta – Edmonton & Area Provincial Highway Projects: http://www.transportation.alberta.ca/projects/edmontonarea.aspx, accessed November 11, 2018. 2 Annual passenger statistics – http://corporate.flyeia.com/business-at-the-airport/air- service-development/passenger-statistics, accessed November 11, 2018 3 Edmonton International Airport – Facts and Statistics: http://corporate.flyeia.com/ media-centre/facts-and-statistics

Watson & Associates Economists Ltd. PAGE 23 Edmonton 2018 Investment Competitiveness Study designated trans-shipment Foreign Trade Zone (FTZ), and the site of Port Alberta, a 3,000-acre site planned to be Alberta’s premier cargo gateway consisting of a multi- modal facility combining air, rail and road transportation.

The EIA has had an expansion in its cargo and air support facilities (e.g. Air Canada Cargo and Support Facility, Canadian North’s Manufacture, Maintenance, Repair and Operations (MMRO) facility and Aeroterm logistics distribution centre). The airport is also experiencing other major industrial and commercial development including an 800,000-square-foot cannabis production facility operated by Aurora Cannabis.

The continued development of the airport as a major multi-modal hub and centre of industrial and commercial activity is expected to drive further industrial development within the southern part of the Edmonton Metropolitan Region including south/southeast Edmonton.

2.3.6 Petrochemical and Basic Chemical Cluster

The Edmonton Metropolitan Region accommodates one of Canada’s key hydrocarbon processing and petrochemical clusters, which represents a unique heavy industrial base comprised of oil and bitumen-based processing and basic chemical production. Edmonton has a notable presence in this industry cluster through its medium and heavy industrial lands base.

There are several major oil and gas projects planned or underway across the Edmonton Metropolitan Region which is expected to continue to expand and strengthen the petrochemical cluster. One major project, the NWR Sturgeon Refinery, is expected to further enhance the region’s profile in the petrochemical and basic chemical industry cluster and serve as a catalyst for further development in the sector. In May of 2018, construction was completed on the 50,000-barrels-per-day facility. There are ten large units onsite, enabling the refinery to process synthetic crude oil into diesel and other petrochemical products. In 2018, SinoCan Global, announced that it planned to build a 167,000-barrels-per-day bitumen refinery in the region.

The Edmonton Metropolitan Region’s petrochemical cluster has excellent access to competitively-priced primary petrochemical feedstocks of petroleum, hydrocarbon liquids and natural gas, as well as other agriculture-based feedstock. With raw material inputs accounting for a significant share of operating costs, low energy prices present a more favourable and cost competitive operating environment for most producers. The

Watson & Associates Economists Ltd. PAGE 24 Edmonton 2018 Investment Competitiveness Study market to attract new petrochemical producers, however, is highly competitive and the Edmonton Metropolitan Region competes directly with a number of locations around the world, most notably the US Gulf Coast.

Global demand for base chemicals is expected to double over the 2015 to 2035 period, driven by growing Asian demand.1 The Edmonton Metropolitan Region’s well- established and competitive petrochemical cluster, combined with strong global demand growth prospects, offers continued value-added supply chain growth opportunities over the medium and long term. Edmonton is well-positioned to capitalize on this growth potential with the market opportunities that the Edmonton Energy and Technology Park offers, assuming that it can provide a cost competitive environment compared to other global locations.

To assist with attracting companies to continue to develop petrochemical facilities, the Province of Alberta announced the Petrochemicals Diversification Program in February, 2016. This program was created in response to input received from the provincial royalty review that a value-added strategy for natural gas products was needed to support upgrading and production of higher value energy products in Alberta.2

In 2016, the Province of Alberta announced two projects that were awarded through the Petrochemicals Diversification Program. The first project is a facility in Alberta’s Industrial Heartland. The second project is an integrated dehydrogenation and polypropylene facility in Strathcona County. The facility was approved to receive up to $300 million in royalty credits and by early 2019 it is expected that a final investment decision will be announced.

2.4 Observations

1 Think Act, Chemicals 2015, Roland Berger Strategy Consultants, May 2015. 2 http://www.energy.alberta.ca/Org/pdfs/Fact_SheetPDP2016.pdf

Watson & Associates Economists Ltd. PAGE 25 Edmonton 2018 Investment Competitiveness Study

During the past decade, there has also been significant structural change in the economy as previously noted, which is altering the nature of economic activities and built form on industrial lands and impacting their character. In recent decades, the composition of industrial development in Alberta has evolved, with less emphasis on the traditional manufacturing sector. Industrial development has been increasingly oriented to large-scale industrial buildings housing wholesale trade, distribution and logistics. This has been driven by increasing demand in the Goods Movement sector to store and manage the distribution/transportation of goods produced locally as well as goods imported from abroad.

Market demand on industrial lands has also been increasingly driven by growth in the “knowledge-based” or “creative class” economy2, including employment sectors such as: professional, scientific and technical services; finance and insurance; real estate and rental and leasing; information and cultural industries; health care and social assistance; and educational services. With an increasing emphasis on these knowledge-based sectors, office development is becoming an increasingly dominant built form.

1 Prestige industrial lands are intended to accommodate primarily business park and light industrial uses and exhibit high development and design standards. 2 Richard Florida, The Rise of the Creative Class. 2002.

Watson & Associates Economists Ltd. PAGE 26 Edmonton 2018 Investment Competitiveness Study

3. Regional Industrial Market Analysis 3.1 Regional Market Area

The Edmonton Metropolitan Region has a large and diverse existing industrial base, totalling approximately 15,800 ha (39,000 acres), of which approximately 71% (11,200 ha) is urban in nature and represents largely light, medium and business industrial lands. The remaining 29% (4,600 ha) is rural and largely represents heavy industrial lands within Alberta’s Industrial Heartland.1 The City of Edmonton has the largest developed industrial lands base in the surrounding market area, accounting for 37% of the total, as illustrated in Figure 16. Other municipalities with relatively large developed industrial bases include Strathcona County (20% of Region total), Sturgeon County (12%), Leduc County (11%), Fort Saskatchewan (9%) and Parkland County (7%).

1 Alberta's Industrial Heartland is Canada's largest hydrocarbon processing region, an area defined by its suitability for chemical, petrochemical, oil and gas investment. The Industrial Heartland is represented by an association of member municipalities, which includes the City of Edmonton.

Watson & Associates Economists Ltd. PAGE 27 Edmonton 2018 Investment Competitiveness Study

Figure 16 Edmonton Metropolitan Region Share of Developed Industrial Base by Municipality

City of Leduc Other Parkland 2% 2% County 7% City of Fort Saskatchewan 9%

City of Edmonton Leduc County 37% 11%

Sturgeon County 12% Strathcona County 20%

Source: Watson & Associates Economists Ltd.

The Edmonton Metropolitan Region’s urban industrial market is comprised of approximately 152 million sq.ft. of industrial space, of which about 79% is located within the City of Edmonton and largely concentrated in the Northwest and South/Southeast Industrial Districts, as illustrated in Figure 17.1 This is followed by the Leduc/Nisku area (12% of the region total), Acheson (Parkland County) (4%), Sherwood Park (3%), and St. Albert (2%).

1 Colliers International Edmonton Industrial Market Report Q3 2018.

Watson & Associates Economists Ltd. PAGE 28 Edmonton 2018 Investment Competitiveness Study

Figure 17 Edmonton Metropolitan Region Industrial Inventory (Building GFA) by Location

Sherwood Park St. Albert 3% 2% Acheson Parkland 4%

Leduc/Nisku 12% Central Edmonton Northwest 3% Edmonton 38% Northeast Edmonton 4%

Southeast Edmonton 34%

Source: Derived from Colliers International Edmonton Industrial Research and Forecast Market Report Q3 2018 by Watson & Associates Economists Ltd.

3.2 Industrial Market Growth Trends

Over the past decade, industrial development activity in the Edmonton Metropolitan Region has been relatively robust, averaging approximately $267,300 per year, with some annual fluctuations based on broader economic trends, as illustrated in Figure 18. Despite the recent regional economic downturn, industrial development activity in the region was relatively strong in 2016 and 2017.

The City of Edmonton’s share of the Region’s industrial development totalled 38% in 2011 to 2017, a slight increase from a share of 36% during the 2006 to 2011 period.1

1 Derived from Government of Alberta Economic Development and Trade, adapted from Statistics Canada building permit survey by Watson & Associates Economists Ltd.

Watson & Associates Economists Ltd. PAGE 29 Edmonton 2018 Investment Competitiveness Study

Figure 18 Edmonton Metropolitan Region Industrial Building Permit Activity, 2008 to 2017

$450,000 $401,958 $400,000

$350,000 $334,225 $329,109 $310,188 $297,921 $300,000 Historical Average $267,289 $276,002

$250,000 $222,716

$200,000 $180,025 (x$1,000) $174,880 $145,867

$150,000 Value of Building Permits Building of Value $100,000

$50,000

$0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Year

Source: Data from Government of Alberta Economic Development and Trade, adapted from Statistics Canada, Building Permit Survey by Watson & Associates Economists Ltd., 2018.

The industrial market in the Edmonton Metropolitan Region experienced robust growth across a broad range of sectors over the 2012 through 2015 period. Over the past two years (2016 to 2017), industrial land absorption1 in the region slowed considerably. Over the past five years, industrial land absorption in the Edmonton Metropolitan Region, outside of Alberta’s Industrial Heartland, averaged approximately 195 ha (475 acres) annually. Of industrial lands absorbed over the last five years, approximately 38% have been accommodated within the City of Edmonton, as shown in Figure 19. Approximately one-quarter of regional industrial land absorption over the period has been accommodated in Parkland County (Acheson), followed by Strathcona County (8%), Leduc County (7%), Leduc City (6%), City of Fort Saskatchewan (6%) and Sturgeon County (2%).

1 Industrial land absorption quantified at point of building permit issuance.

Watson & Associates Economists Ltd. PAGE 30 Edmonton 2018 Investment Competitiveness Study

Figure 19 Edmonton Metropolitan Region Share of Industrial Land Absorption, 2013 to 2017

Sturgeon Other County 5% City of Fort 2% Saskatchewan 6% City of Leduc 6%

Leduc County City of 7% Edmonton 38% Strathcona County 11%

Parkland County 25%

Source: Watson & Associates Economists Ltd.

Since 2010, the City of Edmonton’s share of regional industrial land absorption has gradually declined. This shift is largely attributed to expanded industrial land development opportunities and market choice in municipalities outside Edmonton, most notably in Parkland County and the Leduc/Nisku area.

3.3 Industrial Vacancy Rates and Market Rents

Industrial vacancy rates within the Edmonton Metropolitan Region remained relatively stable over the 2009 to 2015 period, ranging between 3% and 4%. They have increased over the past few years, however, to an average of 6.3% in Q3 2018, and have now exceeded the highs reached in 2009 following the global economic downturn, as illustrated in Figure 20. Vacancy rates have increased most notably in Leduc/Nisku and Sherwood Park (Strathcona County). Industrial vacancy rates in the City of Edmonton have historically been close to the Edmonton Metropolitan Region’s average and are currently 7.1%, more than double the rate observed in 2015. While industrial vacancy rates have declined slightly from highs reached in 2016, current industrial

Watson & Associates Economists Ltd. PAGE 31 Edmonton 2018 Investment Competitiveness Study vacancy rates in the Edmonton Metropolitan Region and the City of Edmonton suggest that there is some excess capacity in industrial building space.

Figure 20 Edmonton Metropolitan Region Industrial Vacancy Rates, 2009 to 2018

8% 7.1% 7%

6% 6.4% 5%

2% Industrial Vacancy Industrial Vacancy Rates (%) 1%

0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Period City of Edmonton Metropolitan Region Source: Derived from Colliers International Edmonton Industrial Research and Forecast Market Reports 2009 - 2018 by Watson & Associates Economists Ltd.

A key variable in understanding the relative strength of the industrial market is the net market rents for industrial space, typically expressed on a per square foot of gross lease area on an annual lease basis and referred to as “net market rent.”

Figure 21 summarizes the average market rents for industrial space in the Edmonton Metropolitan Region by select geographic area. As shown, industrial gross market rents in the City of Edmonton range between an average $11.67 per sq.ft. in the northeast to $14.39 per sq.ft. in the southeast. In comparison, industrial gross market rents in Leduc/Nisku and Acheson average $16.39 per sq.ft. and $19.25 per sq.ft., respectively, moderately higher than in the City of Edmonton.

Watson & Associates Economists Ltd. PAGE 32 Edmonton 2018 Investment Competitiveness Study

Figure 21 Edmonton Metropolitan Region Average Industrial Gross Market Rents

$25

$20 $19.25

$16.39 $14.39 $15 $13.69 $11.67

$10

$5 Average Asking Gross Rent Rent Gross Asking Average

$0 Acheson Leduc/Nisku Southeast Northwest Northeast Edmonton Edmonton Edmonton Area Net Rent Additional Rent

Source: Adapted from Colliers International Edmonton Industrial Research & Forecast Report, Q2 2018, by Watson & Associates Economists Ltd. Ltd. 3.4 Profile of Key Industrial Areas within Edmonton Metropolitan Region

The following provides an overview of key industrial markets within the broader Edmonton Metropolitan Region that serve as direct competitors to the City of Edmonton.

Leduc County

Leduc County’s industrial land base is large and diverse, and mostly concentrated in the Nisku Business Park. The Nisku Business Park is part of a broader industrial base in the Leduc/Nisku Area which forms the second largest energy cluster in North America.1 The Nisku Business Park has a mix of light and medium industrial development of general industrial character, with a high concentration of businesses serving the energy sector. Major industrial sectors include warehousing, manufacturing and construction, largely related to the energy sector.

1 Edmonton Goods Movement Strategy, June 2014.

Watson & Associates Economists Ltd. PAGE 33 Edmonton 2018 Investment Competitiveness Study

Leduc County is home to the EIA, which is situated on the Highway 2 corridor next to the Nisku Business Park. This, along with the new CP intermodal terminal in south Edmonton, is expected to drive logistics and transportation sector growth in the County.

Leduc County offers significant opportunities for industrial development along the Highway 2 corridor. This includes three new industrial parks – Border Business Park (One Properties), QE II Business Park (Hopewell Development) and Discovery Business Park (Remington Group). Phase 1 of the Border Business Park, which includes a 1-million-sq.ft. industrial space, is currently under construction. These three parks are highly marketable for distribution/logistics, manufacturing, office and other commercial uses.

Further industrial development opportunities will also likely emerge along the Highway 19 corridor in proximity to the airport, over the longer term. This includes the South of Devon area which was recently the subject of an Industrial Area Structure Plan. Over the longer term, additional industrial lands along Highway 19 may become available for development, as identified in the Highway 19 Area Structure Plan.

Leduc City

The Leduc Business Park contains the vast majority of the City’s developed industrial base of approximately 350 net ha (865 net acres). The City’s industrial lands accommodate a range of light and medium industrial development. Key employment sectors include oil and gas support services, manufacturing, construction and warehousing and transportation.

The City has a relatively large supply of shovel-ready1 industrial lands totalling 125 net ha (310 net acres) that is highly marketable for light industrial uses. Active industrial areas with significant shovel-ready development opportunities include Telford Industrial Park, Leduc Business Park and Sawridge Business Park.

While the area has historically been highly connected to the energy sector, recent development is becoming more diversified, catering increasingly to light and medium industrial uses including distribution and logistics. This shift to other industrial sectors is evident by a number of recent high-profile projects including a large-scale cannabis

1 “Shovel-ready” lands are defined as those that are serviced and zoned, and generally considered potentially developable in the short term (i.e. next six months).

Watson & Associates Economists Ltd. PAGE 34 Edmonton 2018 Investment Competitiveness Study production facility which recently opened near the EIA. Also, the Ford Motor Company has announced the construction of a 400,000 sq.ft. warehouse and distribution facility.

Parkland County (Acheson)

Acheson serves as the primary industrial area in Parkland County. With a developed industrial base of approximately 1,000 net ha (2,500 net acres), it represents a large, diverse and expanding industrial area located immediately west of the City of Edmonton. Acheson is home to a broad range of light and medium industrial uses in the manufacturing, wholesale trade/distribution, construction, transportation and logistics sectors. The area also accommodates a limited share of commercial uses largely related to heavy equipment services, and professional, scientific and technical services. Acheson is home to approximately 8,500 jobs.1

Acheson has experienced strong industrial development activity over the past five years and has been one of the most active areas for industrial development within the Edmonton Metropolitan Region. Over the period, Acheson has seen an average of approximately 620,000 sq.ft. of gross floor area (GFA) in development activity annually.2 Acheson has been attractive for development due to its large land supply and market choice, highway access (Yellowhead Highway, Highway 16A, Highway 60 and Anthony Henday Drive), competitive land prices, and proximity/access to the CN intermodal terminal.

Acheson continues to offer competitive urban land costs and is highly marketable for large-scale and land-expansive industrial developments including wholesale trade/ distribution, manufacturing, construction and energy services. The area has a large number of private developers with active industrial developments. This includes TAG (Parkland Estates), Panattoni (Southview Industrial Park and Highlands Business Park), Remington Development Corporation (Route 60 Industrial Park), and Fath Group (Fath Business Park). Acheson has approximately 165 net ha (405 net acres) of shovel-ready vacant industrial land and has a significant amount of undeveloped non-districted land, totalling approximately 2,600 gross ha (6,500 gross acres), which could potentially accommodate future industrial development.

1 Watson & Associates Economists Ltd. 2 Ibid.

Watson & Associates Economists Ltd. PAGE 35 Edmonton 2018 Investment Competitiveness Study

City of St. Albert

Historically, industrial development in St. Albert has been accommodated in two relatively small industrial areas – Riel Business Park and Campbell Business Park. The two parks, which accommodate light industrial uses in an urban setting, are approaching buildout.

The City of St. Albert is planning for a new industrial land expansion area which would see their industrial land supply opportunities expand considerably in the future. This includes approximately 100 gross ha (240 gross acres) of land identified for short-term development located along the Anthony Henday Drive corridor and a further 250 gross ha (617 gross acres) for longer-term development along Ray Gibbon Drive known as the Lakeview Business Park. These lands offer the potential to accommodate a broad range of general and prestige industrial uses including distribution/wholesale trade, transportation and commercial services.

Fort Saskatchewan

Fort Saskatchewan has a prominent industrial base significantly tied to the energy sector. This encompasses petrochemical processing and secondary industries including manufacturing and support services. The City’s industrial land base forms part of Alberta’s Industrial Heartland. Heavy industrial zoned land dominates the City’s industrial base, with the rest occupied by light/medium industrial zoned land.

Fort Saskatchewan offers a central location within the core of Alberta’s Industrial Heartland, as well as competitive land prices and direct access to Highway 15, part of the Alberta High Load Corridor, which allows for the movement of goods and the workforce servicing oil and gas operations in northern Alberta. These attributes provide an important competitive advantage for industrial development.

The presence of light/medium industrial development is expanding within Fort Saskatchewan with recent development opportunities within the Fort Industrial Estates, a newer light industrial area. The area is largely undeveloped and offers opportunities for light and medium industrial development. The area has seen a moderate rate of industrial land absorption over the past five years, comprised of a broad range of uses including multi-tenant commercial, utilities, modular yards and manufacturing.

Watson & Associates Economists Ltd. PAGE 36 Edmonton 2018 Investment Competitiveness Study

The City’s heavy industrial base is located on the north side of Highway 15, which represents the oldest part of Alberta’s Industrial Heartland and forms part of the core of its industrial base. The area is oriented to the petrochemical sector but has experienced limited development activity over the past number of years. The City has a limited supply of vacant heavy industrial lands.

The City also has a large planned industrial area known as Josephburg Road North Industrial Area and has an estimated 400 net ha (1,000 net acres) of developable land to accommodate light/medium industrial development over the medium and longer term.

Sturgeon County

Sturgeon County has a diverse industrial base comprised of light, medium, heavy and rural industrial lands significantly tied to the energy sector. This encompasses petrochemical processing and secondary industries including manufacturing and support services.

The County’s Industrial-Heavy designated lands are located in Alberta’s Industrial Heartland, while the Industrial-Rural lands are located throughout the County but most notably in the Sturgeon Industrial Park and Pro-North Industrial Park.

Sturgeon County’s industrial land base comprises a total developed land area of approximately 1,900 net ha (4,700 net acres). Alberta’s Industrial Heartland, which accommodates Sturgeon County’s heavy industrial lands, dominates the County’s industrial base, accounting for three-quarters of the developed industrial land area.

Sturgeon Industrial Park is the County’s largest and only fully serviced light/medium industrial park. Located in southeastern Sturgeon County, the park caters to light and medium industrial uses. With an employment base of approximately 500 jobs, the park is one of the County’s key Employment Areas. The park has a significant presence of manufacturing, construction and transportation/wholesale trade. The park has experienced strong general industrial development activity over the past five years due to market-ready development opportunities and competitive development costs due to lower development standards than in more urban environments. The park has 210 ha (515 acres) of shovel-ready land supply and significant opportunities for future expansion.

Watson & Associates Economists Ltd. PAGE 37 Edmonton 2018 Investment Competitiveness Study

Strathcona County

Strathcona County has a strong and diverse industrial base comprised of a mix of light business and medium industrial lands located in Sherwood Park (Urban Service Area) and heavy industrial lands within the Strathcona Industrial Association located within Sherwood Park and within Alberta’s Industrial Heartland. Strathcona County contains a large share of the Edmonton Metropolitan Region’s existing heavy industrial lands base.

The County’s light/medium industrial lands have seen significant prestige industrial development, including office and knowledge-based sectors and, to a limited extent, retail and service trade. Recent development has been focused in the Lauren Industrial Park and Buckingham Business Park. In the short to medium term, the County’s urban area has opportunities for light and medium industrial within the Buckingham Business Park, Cambrian Crossing, Sochatsky Industrial Area and Shivam Industrial Park. The County’s land supply of light/medium industrial lands is diminishing and the County is looking to expand its industrial land supply. Longer-term supply opportunities include the Bremner Growth Area, which has the potential to accommodate 200 ha (500 acres) of prestige industrial development.

Alberta’s Industrial Heartland

Alberta’s Industrial Heartland, situated in the northeast quadrant of the Edmonton Metropolitan Region, covers an area of 582 km2 within the City of Edmonton, Strathcona County, Fort Saskatchewan, Sturgeon County and Lamont County. In 2010, Edmonton became the fifth member of Alberta's Industrial Heartland Association, with the inclusion of the Edmonton Energy and Technology Park (EETP). Alberta’s Industrial Heartland is Canada's largest hydrocarbon processing region and includes extensive petrochemical processing facilities, including upgraders and refineries.

A large share of the developed portion of Alberta’s Industrial Heartland is located within Strathcona County, Fort Saskatchewan and Sturgeon County.

 Strathcona County’s developed industrial lands within Alberta’s Industrial Heartland totals approximately 1,300 ha (3,200 acres). Major developments within Strathcona’s component of Alberta’s Industrial Heartland include Shell Scotford (vast complex consisting of a refinery, upgrader and chemical plant operated by Shell Canada), Gulf Chemical’s spent recovery facility, ATCO Pipelines’ natural gas storage and distribution facility, and Canadian National

Watson & Associates Economists Ltd. PAGE 38 Edmonton 2018 Investment Competitiveness Study

Railway’s transload facility. A number of major projects are proposed in Alberta’s Industrial Heartland within the County. Within Alberta’s Industrial Heartland, Strathcona offers significant opportunities, totalling approximately 5,600 net ha (14,000 net acres), to accommodate future heavy industrial development.  Fort Saskatchewan accommodates the oldest portion of Alberta’s Industrial Heartland with a developed land base of approximately 1,400 net ha (3,500 net acres). Major employers include Dow Chemical, Sherritt International Corporation, and Nutrien. The area has limited development opportunities, with a vacant industrial land supply of approximately 250 net ha (600 net acres).  Sturgeon County offers significant development opportunities for heavy industry within Alberta’s Industrial Heartland, with a vacant industrial inventory of approximately 4,900 net ha (12,200 net acres). The area is home to a number of major companies including Agrium, Evonik Canada and Access Pipelines.

The EETP currently has no development but has approximately 325 ha (800 acres) of land zoned for future industrial development.

Alberta’s Industrial Heartland is expected to accommodate a significant share of the Edmonton Metropolitan Region’s total industrial employment growth over the next 30+ years. 4. City of Edmonton Industrial Market Profile

As previously discussed, the City of Edmonton’s industrial base is the largest and the most active with respect to development activity within the Edmonton Metropolitan Region.

Industrial lands are an integral part of Edmonton’s economic development potential and they accommodate a significant share of the municipality’s businesses and employment. One of the most critical aspects related to the economic competitiveness of Edmonton is the marketability and availability of its industrial land base relative to the surrounding market area. It is critical that the City continue to plan for employment uses with consideration of market demand and trends.

Edmonton has approximately 5,865 net ha (14,490 net acres) of developed industrial land with a large share located in the northwest and southeast quadrants of the City. Edmonton’s industrial lands accommodate approximately 120.7 million sq.ft. of

Watson & Associates Economists Ltd. PAGE 39 Edmonton 2018 Investment Competitiveness Study industrial space GFA.1 Edmonton’s industrial lands also accommodate a share of the City’s office, commercial service, and institutional space.

The following provides an overview of the City of Edmonton’s established and planned industrial districts with respect to market segmentation, recent development trends as well as occupied, underutilized and vacant industrial land supply opportunities.

4.1 Edmonton’s Industrial Districts

The City’s industrial land base is delineated into four key areas: Northwest Edmonton, Northeast Edmonton, South/Southeast Edmonton and the Edmonton Energy and Technology Park (EETP), which are discussed below.

4.1.1 Northwest Industrial District

The Northwest Industrial District (Northwest District) is located in northwest Edmonton, extending east-west along the Yellowhead Trans-Canada Highway (Highway 16) and north-south along the Anthony Henday Drive corridor. The Northwest District encompasses 2,695 net ha (6,660 net acres) of developed industrial land and represents the largest concentration of industrial space in the Edmonton Metropolitan Region. The industrial inventory totals 58.4 million sq.ft. of GFA, equivalent to 48% of the City’s total industrial building space.2

The Northwest District is largely oriented to logistics, transportation, warehousing and light manufacturing. Of the Northwest District’s employment base, 17% is in wholesale trade followed by 14% in manufacturing, 13% in construction, and 9% in transportation and warehousing. The Northwest District also has notable presence in commercial employment including retail (13% of total employment) as well as professional, scientific and technical services (7%) and other services (6%).

The majority of the City’s transportation and logistics land uses are located in the Northwest District, within proximity of the CN intermodal facility and major highways such as the Yellowhead Trans-Canada Highway, which serves as a major connection to the Canadian west coast. The recent construction of Anthony Henday Drive further

1 Colliers International, Edmonton Industrial Research & Forecast Report, Q3 2018. 2 Ibid.

Watson & Associates Economists Ltd. PAGE 40 Edmonton 2018 Investment Competitiveness Study strengthens the highway connections to this area and the area’s competitive advantage in the transportation and logistics sectors.

Figure 22 Northwest Industrial District Employment by Sector, 2016

Accommodation and food services 3% Other Public administration 11% 3% Wholesale trade Administrative and 17% support 4% Other services (except public administration) Manufacturing 6% 14%

Professional, scientific and technical services 7% Construction 13%

Transportation and Retail trade warehousing 13% 9%

Souce: Derived from 2016 Census Place of Work data by Watson & Associates Economists Ltd., 2018.

Historically, the Northwest District experienced steady industrial land absorption over the past decade (i.e. 2008 to 2017) averaging approximately 34 net ha per year (84 net acres per year). Industrial land absorption in 2016 and 2017 was limited compared to historical trends. The Northwest District’s newer areas are located west of 170th Street and north of the Yellowhead Trans-Canada Highway. Recent development activity has been focused in the Northwest Business Park, Henday Industrial Park, and Northport Business Park

The Northwest District has approximately 695 net ha (1,715 net acres) of vacant industrial land including approximately half (195 net ha or 482 net acres) of Edmonton’s shovel-ready industrial lands. Established large-scale industrial parks in the Northwest District which can accommodate short- to medium-term industrial growth include the Northport Business Park (Oxford Properties Group), Horizon Business Park (Hopewell), Henday Industrial Park (One Properties), Pinnacle Business Park (Pinnacle International), and the Rampart Industrial Park (Hoop Realty Inc.). These areas are prestige and considered highly marketable.

Watson & Associates Economists Ltd. PAGE 41 Edmonton 2018 Investment Competitiveness Study

The Winterburn Industrial Area is expected to accommodate a significant share of industrial development over the long term. The Winterburn Industrial Area was subject to an Area Structure Plan (ASP) which designates the area’s remaining vacant industrial lands to accommodate a wider range of uses, including light industrial, medium industrial and business industrial development. This will raise Winterburn’s competitiveness with respect to light industrial and prestige industrial development markets.

4.1.2 South/Southeast Industrial District

The South/Southeast Industrial District (South/Southeast District) is situated in south and southeast Edmonton. It extends south along the east side of the Highway 2 corridor and eastward from the Highway 2 corridor along the Sherwood Park Freeway and Whitemud Drive corridor south to the Leduc County municipal boundary. The area is well connected by major highways and also benefits from proximity to the EIA.

The District has approximately 2,523 net ha (6,234 net acres) of developed industrial lands, the second largest inventory in the City of Edmonton. The industrial inventory totals 52.2 million sq.ft. of GFA.1 The South/Southeast District has a diverse range of industrial uses. The industrial areas in the east part of the District are largely designated for medium and heavy industry. The area is largely associated with the energy sector and neighbouring “Refinery Row” in Sherwood Park (Strathcona County) and is largely built out. In contrast, the industrial areas in the southern part accommodate predominately light industrial and business park designations, providing for a broad mix of uses including knowledge-based sectors such as business services, research and development, advanced manufacturing, construction and logistics/ distribution. Manufacturing accounts for 18% of the South/Southeast District’s employment base followed by construction (15%), professional, scientific and technical services (13%), wholesale trade (11%), retail trade (7%), transportation and warehousing (5%), other services (5%), and mining, oil and gas sector related employment (5%).

The south part of the South/Southeast District, extending south of Whitemud Drive along the east side of the Highway 2 corridor, has a significant share of the Region’s suburban office and prestige industrial areas, accommodating sectors related to

1 Colliers International, Edmonton Industrial Research & Forecast Report, Q3 2018.

Watson & Associates Economists Ltd. PAGE 42 Edmonton 2018 Investment Competitiveness Study business and financial services as well as research and development. Industrial lands north of Anthony Henday Drive are largely built out, with future development potential largely located south of the highway.

Figure 23 South/Southeast Industrial District Employment by Sector, 2016

Other Administrative and 13% support 4% Manufacturing 18% Public administration 4%

Mining and oil and gas extraction 5% Construction 15%

Other services (except public administration) Professional, 5% scientific and technical services Transportation and Retail trade Wholesale 13% warehousing 7% trade 5% 11%

Souce: Derived from 2016 Census Place of Work data by Watson & Associates Economists Ltd., 2018.

A large share of the development on industrial lands within the City of Edmonton in the past decade has occurred in the City’s South/Southeast District. Wholesale trade, construction and manufacturing accounted for the majority of development in the past decade, largely in the form of prestige large-scale, multi-bay industrial condos. The area has also experienced growth in office and knowledge-based employment. Over the past decade, land absorption in the South/Southeast District averaged 28 net ha (69 net acres) per year. Over the past five years, land development has been highly concentrated in the Ellerslie Industrial and Pylypow Industrial neighbourhoods.

4.1.3 Northeast Industrial District

The Northeast Industrial District (Northeast District) has a developed industrial land base of approximately 649 net ha (1,585 net acres). The Northeast District’s industrial base is relatively small compared to the Northwest and South/Southeast Districts but has expanded significantly over the past five years. Further, the composition of the

Watson & Associates Economists Ltd. PAGE 43 Edmonton 2018 Investment Competitiveness Study

Northeast District is highly oriented to medium and heavy industries. Currently, the area has a limited supply of industrial land available for development totalling 138 net ha (341 net acres). The industrial inventory totals 6.5 million sq.ft. of GFA.1

The recent extension of Anthony Henday Drive has greatly enhanced access to the area. Over the past five years, the area has experienced significant development activity and industrial land absorption within the Aurum Industrial Area. Over the past decade, industrial land absorption has averaged 16 net ha (40 net acres) per year.

The Aurum Energy Park is a recently developed industrial park of 283 ha (700 acres) situated in the City of Edmonton’s Northeast District. The park has direct access to the Yellowhead Trans-Canada Highway (Highway 16) and to Anthony Henday Drive. Other transportation improvement plans that will benefit the park include expansion of rail connectivity with the CP Railway and the CN Railway, which run through the park, allowing for bulk transportation to major markets. The park has a large concentration of companies related to the energy sector including Mammoet, Kiewit and WorleyParsonsCord. While the park has some vacant parcels remaining for development, the park is quickly approaching buildout.

4.1.4 Edmonton Energy and Technology Park

The Edmonton Energy and Technology Park (EETP) represents the last remaining large greenfield area within Edmonton that is available for industrial development. The park is expected to accommodate development over a long-term time horizon and is expected to be developed in phases.

The EETP Area Structure Plan (ASP) was adopted in 2010 and includes a net developable land area of approximately 3,300 ha (8,200 net acres). No development has occurred since the approval of the ASP; however, there has been some land assembly and marketing of the lands for development. This includes the Pilot Sound Industrial Area, a 75-acre industrial development immediately north of Anthony Henday Drive.

The EETP is being marketed as an eco-industrial hub, which will take advantage of its location within Alberta’s Industrial Heartland and will accommodate a range of industrial uses including energy-related value-added industries, manufacturing, logistics and

1 Colliers International, Edmonton Industrial Research & Forecast Report, Q3 2018.

Watson & Associates Economists Ltd. PAGE 44 Edmonton 2018 Investment Competitiveness Study research and development activities. The park will benefit from the recent extension of Anthony Henday Drive and the proposed portion of the Alberta High Load Corridor which will improve accessibility in the area to projects located in Alberta’s Industrial Heartland, Fort McMurray and Alberta’s oil sands.

4.2 Development Activity on Industrial Lands

Figure 24 summarizes building construction (new development) on Edmonton’s industrial lands over the 2006 to YTD 2018 period, expressed in GFA (gross floor area). As illustrated, Edmonton accommodated an average of 2.5 million sq.ft. of development on industrial lands annually over the period. The level of development activity experienced a strong rebound after the 2009/2010 economic downturn with strong growth through 2015. The recent economic downturn in Alberta resulted in a major decline in development activity in 2016 and 2017. Year-to-date 2018 development activity has been significantly stronger than in the previous two years.

Figure 24 City of Edmonton Annual Building Permit Activity on Industrial Lands

6,000

5,119 5,000

4,064 4,000 3,451 3,314 3,074 Historical Average: 3,000 2,874 2,651 2,515 2,543 2,303 2,000 G.F.A. Sq. Ft. (000's) Ft. Sq. G.F.A. 1,467 1,191 1,000 583 450

- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Y.T.D. 2018 Year Industrial Commercial Institutional

Source: Adapted from City of Edmonton building permit activity by Watson & Associates Economists Ltd. Note: Y.T.D. includes activity from January to July.

As presented in Figure 25, over the 2011 to 2018 period, 77% of development on industrial lands has been in the industrial sector compared to 21% in the commercial

Watson & Associates Economists Ltd. PAGE 45 Edmonton 2018 Investment Competitiveness Study sector (14% office and 7% retail and personal services) and 3% in the institutional sector. Over the 2001 to 2018 period, development activity on industrial lands has shifted gradually to encompass a greater share of non-industrial uses, largely associated with growth in the office sector driven by increasing demand in “knowledge- based” sectors.

Figure 25 City of Edmonton, Non-residential Building Permit Activity on Industrial Lands by Sector, 2001 to YTD 2018

100% 7% 3% 5% 3% 7% 3% 90% 5% 12% 14% 80% 70% 60% 50% 85% 40% 80% 77% 30% 20%

Share of G.F.A. by Share of G.F.A. by Sector 10% 0% 2001-2005 2006-2010 2011-Y.T.D. 2018 5 Year Periods of Building Permit Activity Industrial Office Retail & Personal Services Institutional

Source: City of Edmonton Building Permit Activity, 2003-Y.T.D. 2018 derived by Watson & Associates Economists Ltd. Note: Y.T.D. 2018 includes acctivity from January to July.

Over the 2011 to YTD 2018 period, expansions and new construction on developed industrial lands have accounted for approximately 27% of building GFA.1 This suggests that a notable share of recent development activity on industrial lands is being accommodated through intensification of underutilized properties.

1 Watson estimate based on review of total building GFA on industrial lands compared to building GFA on absorbed industrial lands over the 2011 to YTD 2018 period.

Watson & Associates Economists Ltd. PAGE 46 Edmonton 2018 Investment Competitiveness Study

4.3 Industrial Lands Absorption Trends

Figure 26 summarizes annual absorption on industrial lands within Edmonton over the 2006 to YTD 2018 period. As illustrated, industrial land absorption levels have averaged approximately 83 net ha (205 net acres) per year. Over the past five years (i.e. 2013 to 2017), industrial lands absorption has averaged 72 net ha (178 net acres) per year, which has been lower than the historical average.

Annual City-wide industrial land absorption steadily increased between 2003 and 2007. With the onset of the global economic downturn in 2008/2009, industrial land absorption declined sharply in 2008 through 2010. Industrial land absorption levels sharply rebounded in 2011 and absorption levels over the 2011 to 2015 period averaged 121 net hectares (299 net acres). Since the recent economic downturn in Alberta, industrial land absorption has been at a 15-year low, averaging 14 net ha (35 net acres) in 2016 and 10 net ha (25 net acres) in 2017.

Figure 26 City of Edmonton Annual Industrial Land Absorption, 2006 to YTD 2018

220 200 197 180 173 160 154 140 120 120 Historical 100 83 94 89 Average: 83 80 75 60 45 Land Absorbed (Net Hectares) (Net Absorbed Land 40 20 21 14 10 2 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Y.T.D. 2018 Year Land Absorbed

Source: Adapted from City of Edmonton building permit activity by Watson & Associates Economist Ltd. Note: Y.T.D. 2018 Includes activity from January to July.

Figure 27 summarizes the share of industrial land absorption by District over the 2001 to 2018 period. Over the 2011 to 2018 period, the Northwest District has accounted for 42% of Edmonton’s industrial land absorption. In comparison, the South/Southeast District and the Northeast District have accounted for 34% and 24% of the share,

Watson & Associates Economists Ltd. PAGE 47 Edmonton 2018 Investment Competitiveness Study respectively. The Northeast District’s share of industrial land absorption increased from 10% in 2001 to 2005, to 24% in 2011 to 2018. The share of industrial land absorption within the Northwest and South/Southeast Districts over the period has declined.

Figure 27 City of Edmonton Industrial Land Absorption by District, 2001 to YTD 2018

100%

80% 39% 34% 49%

60%

42% 40% 52% 42% 20% 24% 10% 9%

Shares of Land Area Absorbed Absorbed Area LandSharesof 0% 2001-2005 2006-2010 2011-Y.T.D. 2018 Period Northeast Northwest South/Southeast Source: Adapted from City of Edmonton building permit activity by Watson & Associates Economists Ltd. Note: Y.T.D. 2018 includes activity from January to July.

Trends in absorption by zoning are illustrated in Figure 28. In terms of absorption by zoning class, the Medium Industrial zone has experienced the greatest share of absorption over the past 15 years; however, there has been a notable shift to zones of Industrial Business and Light Industrial over the period. During the 2001 to 2005 period, Medium Industrial zoned land accounted for 93% of lands absorbed, compared to 65% over the 2011 to 2018 period. In comparison, Business Industrial and Light Industrial lands have accounted for 19% and 10%, respectively, over the period. Demand for Heavy Industrial zoned land has been very limited since 2011. The increasing share of light industrial and business industrial zoned lands suggests market demand is shifting to more office-based and prestige industrial uses.

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Figure 28 Industrial Land Absorption by Zoning, 2001 to YTD 2018

100% 3% 2% 6% 4% 5% 12% 19% 80% 3% 5% 10% 1% 60%

93% 40% 74% 65%

20% Land Area Absorbed (Net Hectares) (Net Hectares)Absorbed Area Land

0% 2001-2005 2006-2010 2011-Y.T.D. 2018

Medium Industrial (IM) Period Heavy Industrial (IH) Light Industrial (IL) Industrial Business (IB & EIB) Industrial Commercial (IC) Other Source: Adapted from City of Edmonton building permit activity by Watson & Associates Economists Ltd. Note: Y.T.D. 2018 includes activity from January to July.

Figure 29 summarizes the City-wide industrial lands absorbed by parcel size over the 2001 to 2018 period. As illustrated, smaller parcels of less than 1 ha (2.5 acres) accounted for about half the parcels absorbed over the 2011 to 2018 period, but their share of the total has decreased since 2001. Parcels of 1 to 2 ha (2.5 to 5 acres) in size have increased from 18% over the 2001 to 2005 period, to 28% over the 2011 to 2018 period. The share of larger parcels (greater than 10 ha or 25 acres) has also increased over the period, accounting for 5% of absorbed sites over the 2011 to 2018 period. The share of medium-sized parcels of 2 to 5 hectares (5 to 12 acres) has declined marginally, accounting for 12% of absorbed sites since 2011.

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Figure 29 City-Wide Industrial Land Absorption by Parcel Size, 2001 to YTD 2018

100% 3% 5% 2% 5% 5% 16% 20% 12% 80% 18% 28% 60% 22%

40% 63% 51% 50%

20% Share of Parcels by Size Parcel by Parcels of Share

0% 2001-2005 2006-2010 2011- Y.T.D. 2018 Periods of Land Absorption Less than 1 Ha 1 - 2 Ha 2 - 5 Ha 5 - 10 Ha 10 Ha and greater

Source: City of Edmonton Building Permit Activity derived by Watson & Associates Economists Ltd. Note: Y.T.D. 2018 includes activity from January to July.

Over the 2011 to YTD 2018 period, a total of 617 net ha (1,525 net acres) of industrial lands were absorbed in the City of Edmonton. During that period, the lands absorbed accommodated approximately 14.0 million sq.ft. of building GFA, with an average FSI of 21%. A large share of development in the Northwest District has been comprised of large-scale multi-tenant industrial buildings. Development in the Southeast District has been oriented to medium-sized industrial buildings and office developments.

Based on a detailed review of current business licenses, an estimate of building space occupied by industry sector on the developed lands over the period was prepared. As illustrated in Figure 30, wholesale trade accounts for almost one-third (32%) of building space, followed by construction (15%), transportation and warehousing (12%), manufacturing (11%), retail (8%), oil and gas support services (8%) and professional, scientific and technical services (5%).

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Figure 30 Building Space GFA on Absorbed Industrial Lands, 2011 to YTD 2018, by Industry Sector

Accommodation and Health and Social Finance and Food, 1% Services, 1% Insurance, 1% Educational Other, 1% Arts, Entertainment Services, 1% and Recreation, 3% Professional, Scientific and Technical Services, 5%

Oil and Gas Support Wholesale Trade, Services, 8% 32%

Retail, 8%

Manufacturing, 11%

Construction, 15%

Transportation and Warehousing, 13%

Souce: Watson & Associates Economists Ltd., 2018.

The following provides some observations in key industry sectors.

Wholesale Trade

As previously mentioned, wholesale trade has accounted for the largest share of new businesses accommodated on industrial lands absorbed over the 2011 to YTD 2018 period. Wholesale trade has been dominant in the Northwest District, largely associated with sites located in proximity to the CN intermodal facility that are of prestige character. Most recent wholesale-trade-related businesses are located in large-scale multi-tenant industrial buildings in prestige industrial/business parks including Northport Business Park and Northwest Business Park. The wholesale businesses serve a broad range of sub-sectors, including the consumer markets as well as the energy sector.

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Construction

Approximately one-fifth of new businesses accommodated on absorbed industrial lands are in the construction sector. This includes a diverse range of small, mid-sized and large companies engaged in the residential and non-residential sectors. The majority of these construction-based companies are located in the Northwest and South/Southeast Districts.

Manufacturing

Relative to the existing industrial base, Edmonton has seen somewhat limited manufacturing related business growth on recently absorbed industrial lands. New manufacturing businesses have been predominately small to medium sized (i.e. 5,000 to 50,000 sq.ft.) and focused largely in food processing, metal fabrication/metal products and machine shops. A large share of new manufacturing businesses is located in the Southeast area and the Northwest District.

Transportation and Warehousing

The transportation and warehousing sector accounts for a large share of the Goods Movement sector. Similar to wholesale trade, recent transportation- and warehousing- related business growth has been highly concentrated in the Northwest District, and accommodated within large-scale industrial developments.

Knowledge-Based Sectors

Knowledge-based sectors, represented primarily by professional, scientific and technical services and educational services, remains a relatively small share of building GFA, due to relatively high employment densities. Growth has been highly concentrated in the knowledge-based sector in the South/Southeast District.

Other Commercial Businesses

Retail businesses account for a relatively high share (8%) of occupied GFA on recently absorbed industrial lands. Many of these businesses are quite large in scale (e.g. Lowes) and serve a more regional market beyond the immediate industrial area. Accommodation and Food and other services which cater to the local industrial areas are more limited in recent development activity, accounting for a relatively small share of businesses accommodated over the 2011 to 2018 period.

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4.4 Underutilized Developed Industrial Lands

Given the large number of established industrial areas in Edmonton, a wide array of opportunities for intensification exist. While it is beyond the scope of this assignment to undertake an industrial intensification study, a high-level review to assess the share of underutilized sites has been provided to determine supply potential for intensification.

Intensification can take a number of forms, including development of underutilized lots (infill), expansion (horizontal or vertical) of existing buildings and redevelopment of sites. Intensification offers the potential to accommodate future employment growth and achieve improved land utilization resulting in higher employment density in existing industrial areas. Higher land utilization on existing industrial lands can also lead to more effective use of existing infrastructure (e.g. roads, water/sewer servicing), a built form that is more conducive to support for public transit, and communities that are more functional and complete.

4.4.1 Intensification Supply Potential

Through a desktop review using the developed industrial parcel inventory, building footprints and orthophoto overlays, a total of 1,529 ha (3,778 acres) of developed industrial land within the City was identified as underutilized. This represents 26% of the total developed industrial land base. This reflects parcels that have:

 a vacant portion (potential for severance or building expansion); and  relatively low building coverage or sites that are currently used exclusively for storage and/or parking.

A large share of the underutilized parcels is located in the Clover Bar Area and the Southeast Industrial Area which are comprised largely of land-expansive medium and heavy industrial uses and which include many larger parcels that are poorly utilized. The Winterburn area also has a notable number of underutilized parcels. The underutilized parcel inventory has decreased by approximately 6% since 2015, indicating that intensification of industrial lands is occurring throughout the City.1

1 2015 City of Edmonton Investment Competitiveness Study identified 1,618 ha (3,998 acres) of developed industrial land as underutilized.

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4.4.2 Evaluation of Intensification Potential

Identifying and evaluating intensification opportunities against market demand is challenging. The intensification potential of the underutilized industrial lands will largely be determined by future development plans of existing or future landowners, which are highly speculative. Infill and redevelopment of existing developed lands will occur over time, largely driven by market demand for land development opportunities. As previously identified, Edmonton has a significant number of underutilized parcels that hold market potential, which suggests that intensification over the forecast period will be greater than in the past.

As discussed in section 4.2, since 2011 the City has seen relatively strong development activity in expansions/additions on existing industrial lands and redevelopment of existing sites, comprising 27% of non-residential building activity. Having said that, redevelopment activity has been limited and the majority of the recent activity has been related to expansion activity of existing businesses. Infill and redevelopment of existing developed lands are expected to continue to increase over time, largely driven by rising industrial land values and related development costs and the continued buildout of Edmonton’s industrial lands.

Based on recent trends in intensification and the likely redevelopment of key intensification opportunities identified, it is anticipated that 10% of Edmonton’s employment growth on industrial lands over the 2018 to 2028 period will be accommodated through intensification. This assumption is reflected in the industrial land needs analysis presented in section 8.

To effectively assess and evaluate intensification potential and opportunities in Edmonton, and to ensure that the City can meet the 10% intensification target identified, a comprehensive City-wide industrial lands intensification strategy is suggested, which is beyond the scope of this study. A “standalone” industrial lands intensification strategy would involve a site-by-site analysis of potential intensification sites that would include, but not be limited to:

 Assessment of site conditions (e.g. contamination);  Parcel configuration/size;  Suitability of building stock for expansion (where applicable);  Parcel ownership and landowner intentions, future development/expansion;

Watson & Associates Economists Ltd. PAGE 54 Edmonton 2018 Investment Competitiveness Study

 Land-use zoning, possible restrictions on use, etc.;  Review of infrastructure (e.g. condition, capacity); and  The potential for severance of unutilized portions of lots for new development.

The timing and the potential amount of intensification on industrial lands is based on a variety of market-driven conditions. Potential redevelopment or development of sites needs to be evaluated in terms of economic viability and marketability with respect to market demand. This aspect would form a significant component of an industrial land intensification strategy. As part of the intensification strategy, the City could also explore and identify financial tools/incentives and implementation tools to facilitate intensification initiatives.

4.5 Vacant Industrial Land Inventory

The competitiveness of Edmonton’s export-based economy is partly determined by the availability and quality of its developable industrial lands. Further, market choice of shovel-ready industrial lands and the potential for future expansion are key factors in the industrial site selection process. Updating the results of the 2015 City of Edmonton Competitiveness Study, this section provides a comprehensive assessment of the City’s vacant industrial land supply as of 2018.

4.5.1 Vacant Industrial Lands Analysis

Figure 31 summarizes the total gross and net vacant industrial land supply for the City of Edmonton by Industrial District. Figure 32 summarizes the net developable vacant industrial land supply within the City by Industrial District, adjusted for sites which are unlikely to develop and long-term land vacancy. As illustrated, the City has 4,659 net ha (11,512 net acres) of vacant industrial land, marginally less than the 4,694 net ha (11,599 net acres) identified in 2015. This includes approximately 696 net ha (1,720 net acres) within the Northwest District, 496 net ha (1,226 net acres) in the South/Southeast District, 138 net ha (341 net acres) in the Northeast District and 3,329 net ha (8,226 net acres) within the EETP. The following highlights the steps taken to identify the net vacant industrial land supply and net developable vacant industrial land supply.

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Figure 31 City of Edmonton Supply of Net Vacant Industrial Lands (ha)

Non- Net Vacant Total Gross Industrial Land Industrial District Developable Vacant (A) Supply Features1 (B) (C = A-B) Northwest Industrial District 982 286 696 South/Southeast Industrial District 661 165 496 Northeast Industrial District 201 63 138 Edmonton Energy & Technology Park2 5,238 1,909 3,329 Total 7,082 2,423 4,659 Source: Watson & Associates Economists Ltd. 1 Non-Developable features for industrial lands outside of the Edmonton EETP include: - Municipal Reserves or Public Utility Reserve lands - Environmental takeout of vacant industrial lands encroached by environmentally sensitive lands identified through Environmentally Sensitive Areas - Natural Areas (ESA) and North Saskatchewan River Valley and - A downward adjustment of 25-35% to unsubdivided parcels and urban reserve lands (after environmental takeouts) has been applied to account for internal infrastructure and municipal reserve requirements. 2 EETP Gross and net Industrial land supply source data: Horsehills Area Structure Plan, 2010 and the City of Edmonton.

Figure 32 City of Edmonton Supply of Net Developable Vacant Industrial Lands (ha)

Net Developable Net Unlikely to Unlikely to Vacant Developable Long-term Net Vacant Develop Due to Develop Due to Industrial Land Vacant Land Vacancy Industrial District Industrial Land Physical Existing Non- Supply Industrial Land Adjustment Supply (A) Constraints Industrial Land Adjusted for Supply (E)2 1 Uses (C) Long-Term (B) (D = A-B-C) Vacancy (F = D - E) Northwest Industrial District 696 2 32 662 99 563 South/Southeast Industrial District 496 4 25 467 70 397 Northeast Industrial District 138 3 0 134 20 114 Edmonton Energy & Technology Park 3,329 3,329 499 2,830 Total 4,659 9 56 4,593 689 3,904 Source: Watson & Associates Economists Ltd.

1 Reflects sites unlikely to develop due to small size,site configuration and access.

2 Long-term employment land vacancy adjustment - 15% of net developable vacant lands. Accounts for employment land sites, which may not develop over the long-term (i.e. 2028) due to underutilization of employment sites and sites inactive/land banking.

Watson & Associates Economists Ltd. PAGE 56 Edmonton 2018 Investment Competitiveness Study

Non-Developable Lands/Features

A total of 2,451 net ha (6,056 net acres) of non-developable features were identified, as shown in Figure 31. This includes 514 net ha (1,270 net acres) within the Northwest, Northeast and South/Southeast Districts and 1,909 net ha (4,717 net acres) within the EETP. The non-developable features in the EETP is based on the Horsehills Area Structure Plan gross and net developable land area analysis. The non-developable features within the Northwest, Northeast and South/Southeast Districts is comprised of the following components:

 Reserve lands – 33 ha (82 acres) of reserve lands (i.e. municipal reserve and public utility reserve lots) were removed from the inventory and from any further analysis;  Environmental lands – The supply of vacant industrial lands has also been adjusted to exclude Environmentally Sensitive Areas based on the City of Edmonton Natural Areas Inventory, as well as the North Saskatchewan River Valley and Ravine System. In addition, hydrological features such as lakes and ponds were removed from the inventory. Collectively, a total of 61 ha (151 acres) of Environmentally Sensitive Areas and hydrological features were removed from the gross vacant industrial land supply. The environmental takeouts/hydrological features impacting industrial lands are located primarily in the Northwest and Northeast Districts;  Major utility corridors – consisting of oil/gas pipelines located in the Northeast and South/Southeast Districts were also considered, reducing the total inventory by an additional 19 ha (47 acres);  Internal infrastructure – For larger non-subdivided vacant lands districted for future industrial use and urban reserve lands (i.e. Industrial Reserve Zone (AGI), Agricultural Zone (AG)), it is estimated that, after adjusting the gross supply (net of environmental and hydrological features) for internal roads, stormwater, open space, easements/corridors and municipal reserve requirements, the net industrial land supply would be approximately 65-80% of the gross inventory. Accordingly, larger vacant parcels (i.e. typically 10 ha or greater) were subject to an additional downward adjustment removing 401 ha (991 acres) from the vacant industrial land inventory.

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In accordance with the aforementioned adjustments, the City’s net vacant industrial land supply, including the EETP, is estimated at 4,659 net hectares (11,512 net acres), as summarized in Figure 31.

Developable Vacant Industrial Lands Inventory

Some vacant parcels, due to small size, fragmentation, odd configuration, access issues, etc., will likely not develop. Based on a broad level review of zoned industrial lands, 73 parcels were identified as unlikely to develop due to these physical constraints. This reduces the total vacant industrial land inventory by 9 net ha (22 net acres), as summarized in Figure 32. Further, a number of AGI designated parcels were identified that currently have existing non-industrial uses and are considered unlikely to redevelop into industrial uses over the next decade. This includes the AGI (Industrial Reserve) lands which encompass the Twin Willows golf course in the Mistatim Industrial Area and Hurstwood Park rural residential subdivision located within the Maple Ridge neighbourhood. Collectively, these total 56 net ha (138 net acres). Reflecting the identified lands which are unlikely to develop over the forecast period, the developable vacant industrial land inventory, including the EETP, totals 4,593 net ha (11,349 net acres).

Adjustment for Long-Term Vacancy

Long-term land vacancy is a common characteristic which is experienced in industrial parks throughout the City of Edmonton, the Edmonton Metropolitan Region and elsewhere in Canada. This reflects sites which are unlikely to develop to their full capacity due to underutilization of future development and parcel inactivity/land banking, which may tie up potentially vacant and developable lands. While these observations largely apply to Edmonton’s more mature industrial areas, over the next decade it is foreseeable that the City’s newer industrial areas, as they mature, will also begin to exhibit these characteristics. For the purpose of this analysis, an estimate of 15% long- term land vacancy has been applied to the net developable vacant industrial land inventory. Adjusted for land vacancy, the City’s net developable vacant industrial land supply, including the EETP, is 3,904 net ha (9,647 net acres), as summarized in Figure 32.

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Summary of Net Developable Vacant Industrial Land by District

Figure 33 summarizes the share of net developable vacant industrial land by Industrial District. As illustrated, more than two-thirds (71%) is situated in the EETP. In comparison, the Northwest and South/Southeast Districts account for 15% and 11%, respectively. The Northeast District has the smallest supply of the four Industrial Districts, accounting for 3% of the City-wide total.

Figure 33 Share of Net Developable Vacant Industrial Land by District

Northeast Industrial District 3% South/Southeast Industrial District 11%

Northwest Industrial District 15% Edmonton Energy & Technology Park 71%

Source: Watson & Associates Economists Ltd., 2018.

The total share of developed and vacant industrial land by Industrial District is summarized in Figure 34. A map of City-wide industrial land supply is presented in Figure 35. Of Edmonton’s 10,526 net ha (26,090 net acres) total designated industrial land area, approximately 44% of the land area is vacant and developable. Of the total designated industrial lands within the City’s two largest established Industrial Districts (the Northwest and South/Southeast Districts), approximately 21% and 16%, respectively, of land area is vacant and developable. Vacant industrial lands in the Northwest District are located primarily in Rampart Industrial, Mistatim Industrial, Kinokamau Industrial and Winterburn Industrial areas. Vacant industrial lands in the South/Southeast District are concentrated in the Pylypow Industrial Area, Maple Ridge

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Industrial Area and Ellerslie Industrial Area. The proportionate share of vacant developable lands within the Northeast District is 18% with the majority of vacant industrial lands located in the Clover Bar area. Currently, 100% of the industrial lands within the EETP are vacant.

Figure 34 Developed and Vacant Industrial Lands by District

Industrial District Developed Vacant1 Total Share Vacant Northwest Industrial District 2,673 696 3,369 21% South/Southeast Industrial District 2,548 496 3,044 16% Northeast Industrial District 647 138 784 18% Edmonton Energy & Technology Park 0 3,329 3,329 100% Total 5,867 4,659 10,526 44% Source: Watson & Associates Economists Ltd. 1 Excludes long-term vacancy adjustment.

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Figure 35 City of Edmonton Industrial Land Inventory

Watson & Associates Economists Ltd. PAGE 61 Edmonton 2018 Investment Competitiveness Study

The City’s vacant industrial lands within the Northwest, South/Southeast and Northeast Districts are presented in Figure 36, Figure 37, and Figure 38, respectively.

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Figure 36 Northwest Edmonton Industrial Land Supply

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Figure 37 South/Southeast Edmonton Industrial Land Supply

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Figure 38 Northeast Edmonton Industrial Land Supply

Watson & Associates Economists Ltd. PAGE 65 Edmonton 2018 Investment Competitiveness Study

4.5.2 Shovel-ready Industrial Land Supply

As previously stated, market choice of shovel-ready industrial lands and potential for future expansion are key factors in the industrial site selection process. Based on a further review of the net vacant industrial land supply, it was determined that the City has 410 net ha (1,013 net acres) of shovel-ready industrial land. The City’s supply of shovel-ready land has increased moderately since 2015 but is 29% lower than in 2011 when 577 net ha (1,426 net acres) of land were identified as shovel-ready, as illustrated in Figure 39.

Figure 39 City of Edmonton Shovel-Ready Industrial Lands, 2011, 2015 and 2018

700

600 577

500 410 400 353

300

200

100

Shovel Ready Land Supply, Shovel Ready Supply, Land Hectares 0 2011 2015 2018 Year Source: Derived from City of Edmonton data by Watson & Associates Economists Ltd. As illustrated in Figure 40, nearly half (48%) of Edmonton’s current shovel-ready industrial lands supply is located in the Northwest District. The South/Southeast District accounts for 42% of the total, while the Northeast District accounts for 10%.

Watson & Associates Economists Ltd. PAGE 66 Edmonton 2018 Investment Competitiveness Study

Figure 40 City of Edmonton Shovel-Ready Industrial Lands by Location

Northeast 10%

South/southeast 42%

Northwest 48%

Source: Derived from City of Edmonton data by Watson & Associates Economists Ltd.

Figure 41 summarizes the City-wide shovel-ready industrial lands supply by zoning class. As shown, 53% of land supply is Medium Industrial (represented by Medium Industrial and Ellerslie Medium Industrial) while Light Industrial zoned lands account for 14% of the total. Business Industrial lands (represented by Business Industrial and Ellerslie Business Industrial) account for 24% of the total. In comparison, Heavy Industrial zoned lands account for 4% of the total. In relation to recent land absorption trends, Edmonton’s supply of shovel-ready lands by zoning appears to be well balanced to market demand.

Watson & Associates Economists Ltd. PAGE 67 Edmonton 2018 Investment Competitiveness Study

Figure 41 City of Edmonton Shovel-Ready Industrial Lands by Zoning

Other IH EIB EIM 5% 4% 10% 3%

IL 14%

IM 43% IB 21%

Source: Derived from City of Edmonton data by Watson & Associates Economists Ltd.

Figure 42 summarizes the share of shovel-ready industrial land, by parcel size. As shown, vacant shovel-ready sites of less than 2 net hectares (5 net acres) represent the majority (79%) of the land parcels available for development. These include sites measuring less than 1 net hectare which account for 54% and sites of 1 to 2 net hectares (2.5 to 5 net acres) which account for 25% of the vacant shovel-ready parcels on industrial lands. In terms of medium and larger sized parcels, those measuring 2 to 5 net hectares (5 to 12 net acres) account for 14% of the supply of vacant shovel-ready parcels, while larger sites greater than 5 hectares (12 acres) account for 8% of the shovel-ready vacant parcels available for development.

Relative to recent absorption trends, Edmonton’s composition of shovel-ready lands by parcel size appears to be well balanced against market demand for smaller parcels.

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Figure 42: Shovel-ready Industrial Lands by Parcel Size

Parcel Size "Shovel-Ready"1 Land Parcels (Net Hectares) Parcels (#) Share of Parcels (%) Less than 1 Ha 127 54% 1 - 2 Ha 58 25% 2-5 Ha 33 14% 5 - 10 Ha 12 5% 10 Ha and greater 6 3% Total 236 100% Source: Derived from City of Edmonton data by Watson & Associates Economists Ltd. 1 "Shovel-ready" lands are defined as those that are serviced and zoned, and generally considered potentially developable in the short-term (i.e. next six months). 5. Regional Industrial Competitiveness and Investment Readiness Analysis

The City of Edmonton competes directly with many of the other municipalities located in the Edmonton Metropolitan Region for industrial development, most notably with Parkland County, Leduc County, City of Leduc, Strathcona County, City of Fort Saskatchewan, Sturgeon County and City of St. Albert.

Locational and transportation attributes, trends in non-residential development activity and tax assessment ratios within these municipalities are explored herein to better understand the City’s relative competitive position with respect to non-residential development. At the local level, the competitiveness of Edmonton’s industrial lands is determined by a number of factors including, but not limited to, servicing standards, availability of vacant industrial lands as well as development and operating costs. These factors are explored below.

5.1 Locational Attributes and Access to Transportation Infrastructure

Location factors play a key role in the distribution of the dominant business clusters visible across the Edmonton Metropolitan Region, such as manufacturing, transportation/logistics, wholesale trade, construction, and petrochemical processing. The Edmonton Metropolitan Region has maintained a strong industrial base that has

Watson & Associates Economists Ltd. PAGE 69 Edmonton 2018 Investment Competitiveness Study grown and evolved in connection with major transportation networks throughout the area.

Regional highway connections are considered highly important for industrial development and, historically, areas with good highway access have seen strong development pressure. The completion of the northeast leg of Anthony Henday Drive into a complete “ring road,” has provided greater access and industrial development opportunities in the northeast part of the Region, including the Northeast Edmonton Industrial District and the Edmonton Energy and Technology Park.

Given the Region’s strong presence in the logistics/distribution sector, intermodal facilities also play an important role in industrial development patterns. The CN intermodal facility in northwest Edmonton has been a major catalyst for industrial development within that part of Edmonton and the Acheson Industrial Area in Parkland County. Further, the CP intermodal facility in south Edmonton is expected to expand the multi-modal structure of the area, creating further development opportunities for logistics and distribution in south Edmonton and Leduc County along the Highway 2 corridor.

Proximity and access to a major airport is also advantageous for an increasing number of industrial sectors and “knowledge-based” businesses. Sectors such as research and development and advanced manufacturing rely increasingly on air transport in their supply chains and just-in-time delivery. Other sectors directly tied to airport activities and operations include air freight distribution/logistics. The EIA has served as a catalyst for light industrial and office development in south Edmonton and the airport is considered a key driver of future industrial land development in the Leduc/Nisku area.

5.2 Non-Residential Development Growth Trends

Historically, the City of Edmonton has captured the majority of non-residential development in the Edmonton Metropolitan Region. As illustrated in Figure 43, the City of Edmonton’s share of the Region’s non-residential development activity has remained relatively stable over the 2001 to 2017 period, capturing 68% of development activity (as expressed in dollars) over the 2011 to 2017 period.

As illustrated in Figure 44, the City of Edmonton’s share of the Region’s industrial development totalled 38% in 2011 to 2017, a slight increase from the 2006 to 2011

Watson & Associates Economists Ltd. PAGE 70 Edmonton 2018 Investment Competitiveness Study period. The City’s share of commercial development activity has remained relatively constant over the past decade, averaging approximately 70%. With respect to institutional development activity, the City’s share has increased from 69% in 2006 to 2011, to 82% over the 2011 to 2017 period.

Figure 43 Edmonton Metropolitan Region Share of Total Non-Residential Building Permit Activity, 2001 to 2017

100% 90% 30% 32% 80% 35% 70% 60% 50% 40% 70% 68% 30% 65% 20% 10%

% Share of Total Building Permit Value Permit Building Total ofShare % 0% 2001 to 2005 2006 to 2010 2011 to 2017 Year City of Edmonton Edmonton Metropolitan Region (Excluding City of Edmonton) Source: Data from Government of Alberta Economic Development and Trade, adapted from Statistics Canada, Building Permit Survey by Watson & Associates Economists Ltd., 2018.

Watson & Associates Economists Ltd. PAGE 71 Edmonton 2018 Investment Competitiveness Study

Figure 44 Edmonton Metropolitan Region Share of Total Non-Residential Building Permit Activity by Sector, 2001 to 2017

100%

90% 18% 29% 30% 31% 80%

70% 64% 62% 60%

50%

40% 82% 71% 70% 69% 30%

20% 36% 38% % Share of Total Building Permit Value Permit Building Total of Share % 10%

0% 2006-2010 2011-2017 2006-2010 2011-2017 2006-2010 2011-2017 Industrial Commercial Institutional

City of Edmonton Edmonton Metropolitan Region (Excluding City of Edmonton)

Source: Data from Government of Alberta Economic Development and Trade, adapted from Statistics Canada, Building Permit Survey by Watson & Associates Economists Ltd., 2018. 5.3 Residential and Non-Residential Tax Assessment Ratios

Property tax assessment ratios of residential and non-residential development provide insight into the balance of the non-residential and residential tax base. Figure 45 summarizes the tax assessment base by residential and non-residential ratios for selected municipalities across the Edmonton Metropolitan Region. Key observations include:

 The City of Edmonton’s tax assessment ratio is 75% residential and 25% non- residential, which is more oriented towards the residential assessment compared to the Province as a whole;  Over the past five years, Edmonton’s tax assessment ratio for residential has remained largely unchanged from 73% in 2013 to 74% in 2018;  Leduc County’s assessment base is the most oriented towards the non- residential sector of the municipalities surveyed, with a 67% non-residential, 33% residential tax assessment ratio;

Watson & Associates Economists Ltd. PAGE 72 Edmonton 2018 Investment Competitiveness Study

 Strathcona County, City of Fort Saskatchewan and Sturgeon County have a large machinery and equipment assessment base, accounting for 30%, 24% and 18%, respectively, of the assessment base;  Linear property, which includes electric power systems, street lighting, telecommunications systems, and pipelines, accounts for a sizable portion of the assessment base in Parkland County, Leduc County and Sturgeon County, with each accounting for 17%, 16% and 11%, respectively, of the assessment base;  The remaining municipalities surveyed have assessment ratios that are more heavily oriented to the residential sector relative to the City of Edmonton; and  A favourable non-residential tax assessment base helps to support lower residential taxes and higher service levels.

Figure 45 Edmonton Metropolitan Region, Residential/Non-residential Tax Assessment Ratios,1 2018

Alberta 63% 20% 8.9% 7%

Leduc County 33% 48% 1.6% 16%

Strathcona County 51% 16% 30.2% 2%

Sturgeon County 54% 16% 18.2% 11%

City of Fort 23.6% 2% Saskatchewan 56% 19%

Parkland County 59% 21% 2.4% 17%

City of Leduc 64% 35%

City of Edmonton 75% 24%

City of Spruce Grove 82% 17%

Town of Stony Plain 85% 14%

City of St. Albert 86% 13%

0% 20% 40% 60% 80% 100% Ratios of Assessment Base, 2018

Residential Non-Residential (Non regulated) Machinery and Equipment Linear Property Farmland Railway Source: Derived from the Alberta Municipal Affairs, Provincial 2018 Equalized Assessment Report, November 1, 2017, by Watson & Associates Economists Ltd., 2018.

1 Non-residential tax base includes non-residential/non-regulated, machinery and equipment, linear property, farmland and railway as defined by the Alberta Municipal Affairs.

Watson & Associates Economists Ltd. PAGE 73 Edmonton 2018 Investment Competitiveness Study

5.4 Industrial Land Supply Opportunities

The Edmonton Metropolitan Region has a large amount of vacant industrial lands totalling approximately 19,400 net ha (47,900 net acres), representing a mix of urban industrial and rural industrial lands. The urban industrial land supply, representing largely light/medium industrial land opportunities, accounts for 26% of the total (approximately 5,100 ha or 12,600 acres). The vast majority of the remaining lands are located in Alberta’s Industrial Heartland which offers significant opportunities to accommodate medium and heavy industrial users, with a total of approximately 14,200 ha (35,100 acres).1 The majority of vacant industrial land in Alberta’s Industrial Heartland is located in Strathcona County, Sturgeon County and the City of Edmonton. Fort Saskatchewan’s share of vacant industrial land within Alberta’s Industrial Heartland is relatively small.

The competitiveness of Edmonton’s export-based economy is partly determined by the availability and quality of its developable industrial lands. Strathcona County, Sturgeon County and the City of Edmonton have the largest total vacant industrial land inventories, totalling 6,110 ha (15,100 acres), 5,930 net ha (14,655 net acres) and 4,660 net ha (11,515 net acres), respectively, as illustrated in Figure 46, with a significant share attributed to lands located in Alberta’s Industrial Heartland. The vacant industrial land inventories in the other surveyed municipalities is considerably smaller, consisting primarily of urban industrial lands.

1 Includes lands located within the City of Edmonton, Strathcona County, Sturgeon County and the City of Fort Saskatchewan. Excludes Lamont County which is outside the Edmonton Metropolitan Region.

Watson & Associates Economists Ltd. PAGE 74 Edmonton 2018 Investment Competitiveness Study

Figure 46 Edmonton Metropolitan Region, Vacant Designated Industrial Land Supply, 2018

7,000 6,110 6,000 5,930

5,000 4,660

4,000

3,000

2,000

1,000 835 505 405 305 240 205 160 0 Total Vacant Industrial Land Supply, Hectares Supply, Land Industrial Vacant Total Strathcona Sturgeon City of Leduc County City of Fort Parkland City of St. City of Spruce City of Leduc Town of Stony County County Edmonton Saskatchewan County Albert Grove Plain Urban Industrial Alberta's Industrial Heartland/Rural Source: Watson & Associates Economists Ltd., 2018.

Figure 47 summarizes the distribution of vacant urban industrial land in the Edmonton Metropolitan Region outside Alberta’s Industrial Heartland, which largely accommodates light and medium industrial uses. The City of Edmonton has the largest supply of vacant designated urban industrial land (1,330 net ha or 3,285 net acres). This is followed by Leduc County (835 net ha or 2,065 net acres), Sturgeon County (810 net ha or 2,000 net acres), Parkland County (400 net ha or 531 net acres), Strathcona County (340 net ha or 840 net acres), St. Albert (300 net ha or 740 net acres), City of Fort Saskatchewan (260 net ha or 640 net acres), City of Spruce Grove (240 net ha or 593 net acres), City of Leduc (205 net ha or 505 net acres) and the Town of Stony Plain (160 net ha or 395 net acres).

Watson & Associates Economists Ltd. PAGE 75 Edmonton 2018 Investment Competitiveness Study

Figure 47 Edmonton Metropolitan Region, Designated Urban Light/Medium Industrial Land Supply, 2018

1,400 1,330

1,200

1,000

835 810 800

600

Total Designated Designated Total 400 400 340 305 260 240 205

Urban Industrial Lands, Hectares Lands, Industrial Urban 200 160

0 City of Leduc County Sturgeon Parkland Strathcona City of St. City of Fort City of Spruce City of Leduc Town of Stony Edmonton County County County Albert Saskatchewan Grove Plain

Source: Watson & Associates Economists Ltd., 2018. Note: Excludes Alberta's Industrial Heartland.

The Edmonton Metropolitan Region’s shovel-ready urban industrial land supply is presented in Figure 48. As shown, the largest supply of shovel-ready land is located in the City of Edmonton with 410 net ha (1,015 net acres). This is compared to 210 net ha (520 net acres) in Sturgeon County, 180 net ha (445 net acres) in Leduc County, 165 net ha (410 net acres) in Parkland County and 125 net ha (310 net acres) in the City of Leduc. The shovel-ready urban industrial land supply in Strathcona County, the City of Fort Saskatchewan and the City of St. Albert is more limited, ranging between 20 and 60 net ha (50 and 150 net acres).

Relative to recent industrial land absorption levels, however, the City of Edmonton has one of the lower shovel-ready land supplies to accommodate market demand, as illustrated in Figure 49. With an estimated supply of approximately 6 years of land, Edmonton’s supply is significantly lower than Sturgeon County (46 years), Leduc County (13 years) and the City of Leduc (11 years). The shovel-ready land supply in Edmonton is comparable to that of St. Albert and higher than in Strathcona County, Parkland County (3 years) and Fort Saskatchewan. From a regional perspective, Edmonton’s shovel-ready industrial land supply is more favourable in 2018 than in 2015.

Watson & Associates Economists Ltd. PAGE 76 Edmonton 2018 Investment Competitiveness Study

Figure 48 Select Municipalities in the Edmonton Metropolitan Region, Shovel-ready Urban Light/Medium Industrial Land Supply, 2018

500

410 Urban Urban

- 400

300

210 200

180 165 Ready Land Supply Supply Land Ready - 125 100

Shovel Light/Medium Industrial, Net Hectares Net Industrial, Light/Medium 30 20 0 City of Sturgeon Leduc County Parkland City of Leduc Strathcona City of Fort City of St. Albert Edmonton County County County Saskatchewan Source: Watson & Associates Economists Ltd., 2018. Note: Excludes Alberta's Industrial Heartland.

Figure 49 Select Municipalities in the Edmonton Metropolitan Region, Estimated Years of Shovel- ready Urban Light/Medium Industrial Land Supply (as of 2018)

50 46 45

Ready Land Supply Supply Land Ready - 25

15 13 11

10 Based on Recent Absoprtion Recent on Based 6 6 5 3 3 3 0 Estimated Years of Shovel of Years Estimated Sturgeon Leduc County City of Leduc City of St. Albert City of Parkland City of Fort Strathcona County Edmonton County Saskatchewan County Source: Watson & Associates Economists Ltd., 2018. Note: Excludes Alberta's Industrial Heartland. 5.5 Cost of Development Parameters for Industrial Lands Development

A factor influencing business decisions on where to locate is the cost competitiveness (both capital investment and operating costs) of the development in relation to market

Watson & Associates Economists Ltd. PAGE 77 Edmonton 2018 Investment Competitiveness Study demand and potential return on investment. The cost competitiveness of development on industrial lands in Edmonton versus competing municipalities is examined in detail in section 6, through a series of pro-forma financial analyses assessing the costs of constructing and operating various prototypical developments. Key cost parameters include industrial land costs, off-site levies and property taxes which are discussed below within the broader regional industrial market context.

5.5.1 Price of Serviced Vacant Industrial Lands

Figure 50 summarizes the price of serviced industrial land per acre by location in the Edmonton Metropolitan Region as of 2018. The price of serviced industrial land ranges from $350,000 per acre to $700,000 per acre. The Cities of Spruce Grove and Fort Saskatchewan are on the lower end of the range with an average price of $350,000 and $404,000 per acre for serviced land, respectively. Serviced industrial lands in the City of Edmonton average $642,000 per acre, the second highest of the municipalities surveyed after St. Albert ($650,000 per acre). Within Edmonton, industrial land prices are highest in the South/Southeast District ($750,000 per acre) and the Northwest District ($700,000 per acre). Land prices are lower in the Northeast District ($520,000 per acre). Comparatively, industrial land prices are also relatively high in Sherwood Park (Strathcona County) ($600,000 per acre) but more moderate in Nisku/Leduc ($525,000 per acre) and Acheson ($450,000 per acre).

From a competitiveness perspective, land prices may provide a key advantage for a municipality. In particular, low land prices may be an advantage for land extensive uses like transportation, warehousing, large scale manufacturing or any other uses where the cost of acquiring land for development might influence location decisions. From this perspective, Edmonton has a moderate cost competitive disadvantage compared to most other municipalities in the Edmonton Metro Region.

Average serviced industrial land prices in the City of Edmonton have, however, declined by approximately 10% since 2015, while prices in surveyed comparator municipalities have remained largely unchanged. While Edmonton is more competitive from a land cost perspective in 2018 compared to 2015, the decline in land prices is indicative of a industrial market in the City that has seen softening in demand over the period.

Watson & Associates Economists Ltd. PAGE 78 Edmonton 2018 Investment Competitiveness Study

Figure 50 Price of Serviced Industrial Land by Location, 2018 ($/Acre)

$800,000 $750,000 $700,000 $650,000 $600,000 $600,000 $525,000 $525,000 $500,000 $450,000 $404,000 $400,000 $350,000

$200,000 Price of Serviced Land Per Acre Per Land Serviced of Price

$- Southeast Northwest Northeast City of St. Albert Sherwood Park Nisku/Leduc Acheson Fort Spruce Grove Edmonton Edmonton Edmonton Edmonton (Strathcona (Parkland Saskatchewan Metro Region County) County)

Note: Due to data availability, EETP price is Watson estimate. Source: Avison Young Industrial Reports and Real Estate Brokerage Brochures.

5.5.2 Off-site Levies per Hectare on Industrial Lands

Off-site levies can influence the decision of an investor in developing land. Off-site levy rates range from $50,300 to $252,700 per ha among the municipalities surveyed, as summarized in Figure 51. It is noted that levy rates are generally area specific and rates may vary depending on location. Further, the manner in which off-site levies are calculated and the cost components captured can vary widely by municipality making a direct comparison challenging.

The City of Edmonton’s off-site levy rate ranges from $196,200 to $252,700 per ha depending on location. The City of Edmonton’s off-site levies are among the highest of the municipalities surveyed and, depending on the location, significantly higher than the survey average. Parkland County has the lowest off-site levy rates among the municipalities surveyed at $96,100 per ha. This is followed by Sturgeon County ($100,100 per ha) and Leduc County ($103,400 per ha). Next to Edmonton, municipalities with relatively high off-site levies include St. Albert ($251,600 per ha) and Strathcona County ($143,000 per ha).

Watson & Associates Economists Ltd. PAGE 79 Edmonton 2018 Investment Competitiveness Study

Figure 51 Selected Municipalities in the Edmonton Metropolitan Region, Off-Site Levies per Net Developable1 Hectare on Industrial Lands

Municipality Water Sanitary Stormwater4 Roadway Total

City of Edmonton1 See Note2 See Note3 $129,800 $66,400 - $122,900 $196,200 - $252,700

City of St. Albert $79,600 $50,600 $0 $121,400 $251,600

Strathcona County $15,600 $14,900 $0 $112,900 $143,400

Leduc County5 $31,400 $11,700 $3,000 $57,300 $103,400

Sturgeon County6 $24,000 $14,100 $5,400 $56,600 $100,100

Parkland County7 $41,800 $8,500 $0 $45,800 $96,100

1 Rates obtained from the City of Edmonton, Current Planning Branch. Based on the weighted average of 2018 rates from the City of Edmonton for Roadway Levies and 2017 averages for other levies. 2 Developers are responsible for the cost of installing all water mains 450 mm in diameter and smaller. Partial rebates for water mains 300 mm to 450 mm diameter are paid by EPCOR based on a sliding scale. EPCOR is responsible for the cost of water mains larger than 450 mm in diameter. 3 Fees for sanitary are embedded in stormwater. 4 City of Edmonton based on a 2017 weighted average. Total approx. weighted average for Drainage Assessments is $129,788/ha. Trunk sewers and other large drainage infrastructure is front-ended by developers and cost shared through a Permanent Area Contribution (PAC) system. Assessments range from $109/ha to $337,327/ha for storm ($73,015/ha weighted average), and $139/ha to $359,067/ha for sanitary ($33,286,866/ha weighted average). Additional Overexpenditure payments may be required, which would be recovered from future developments. Expansion Assessment (EA) also applies to areas that do not have an approved Neighbourhood Structure Plan on January 1, 1998. EA average for 2017 is $23,486/ha. 5 Based on Crossroads Area. 6 Based on an average of Sturgeon Industrial Area. 7 Based on an average of the Acheson area.

5.5.3 Non-residential Tax Rates

Property tax rates represent a consideration for business location decisions, since taxes impact operating profit annually. Figure 52 summarizes non-residential tax rates in the selected municipalities in the Edmonton Metropolitan Region. Key observations are, as follows:

 The City of Edmonton’s non-residential tax rate of 2.12% is the highest of the municipalities surveyed and well above the survey average of 1.34%;  Leduc County, Town of Stony Plain and Parkland County with tax rates of 1.07%, 1.17% and 1.17%, respectively, have relatively low non-residential tax rates compared to the other municipalities surveyed;

1 Developable land refers to the total area of land available for development, not necessarily the total area of a property itself. It does not include road, physical constraints (small size, configuration and access) and water/environmental features.

Watson & Associates Economists Ltd. PAGE 80 Edmonton 2018 Investment Competitiveness Study

 Parkland County, Strathcona County, City of St. Albert (annexation lands only) and Leduc County have an additional property tax class for non-residential which includes machinery and equipment.1 The tax rate for machinery and equipment ranges from 0.69% in Leduc County, 0.72% in Parkland County and 0.80% in Strathcona County to 0.91% in St. Albert. The machinery and equipment class accounts for 30% of the Strathcona County’s tax assessment base, while it accounts for less than 3% of the assessment base in Parkland County, St. Albert and Leduc County; 2 and  None of the municipalities in the Edmonton Metropolitan Region currently have business taxes.

1 Machinery and equipment property class is defined in the Property Assessment and Taxation in Alberta Guide, Government of Alberta Ministry of Municipal Affairs to include such things as underground tanks, separators, fuel gas scrubbers, compressors, chemical injectors, and metering and analysis equipment. Machinery and equipment are used in conjunction with properties such as refineries, chemical plants, pulp and paper plants, and oil sands plants. 2 Alberta Municipal Affairs, Provincial 2016 Equalized Assessment Report, October 30, 2015.

Watson & Associates Economists Ltd. PAGE 81 Edmonton 2018 Investment Competitiveness Study

Figure 52 Selected Municipalities in the Edmonton Metropolitan Region Tax Rates by Municipality, 2018

City of Edmonton 2.12%

City of St. Albert 1.45%

Sturgeon County 1.39%

City of Fort Saskatchewan 1.29%

Strathcona County 1.28%

City of Leduc 1.27%

City of Spruce Grove 1.23%

Parkland County 1.17%

Town of Stony Plain 1.17%

Leduc County 1.07%

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% Property Tax Rates, 2018 Notes: Includes all property taxes imposed: municipal, education, housing/foundation and allowance on requisitions. Source: Based on a survey of posted 2018 property tax rates. Watson & Associates Economists Ltd.

5.6 Servicing Standards of Select Industrial Areas

The following industrial/business parks within the City of Edmonton and the broader Edmonton Metropolitan Region were reviewed with respect to service standards:

 Acheson Industrial Area, Parkland County;  Aurum Industrial Park, City of Edmonton;  Border Business Park, Leduc County;  Henday Industrial Park, City of Edmonton;  Laurin Industrial Park, Strathcona County;  Pylypow Business Park, City of Edmonton; and  Sturgeon Industrial Park, Sturgeon County.

Watson & Associates Economists Ltd. PAGE 82 Edmonton 2018 Investment Competitiveness Study

The Pylypow Business Park and Henday Industrial Park have the most prestige industrial character of the surveyed parks and accommodate largely light industrial development. The Border Business Park, Laurin Industrial Park and Acheson Industrial Area have a more general industrial character but also accommodate light and medium industrial uses. The Aurum Industrial Park accommodates largely medium industrial uses, while the Sturgeon Industrial Park accommodates a range of medium and heavy industrial uses.

The transportation infrastructure within each park is summarized in Figure 53. Key observations include:

 Internal roadways consist largely of a series of collector and local roadways, with a carriageway width ranging between 12.4 to 14.5 metres and 11.4 to 11.5 metres, respectively;  Roadways in surveyed parks in Edmonton as well as the Laurin Industrial Park in Strathcona County are built to urban design standards. In contrast, roadways in the Acheson Industrial Area, Sturgeon Industrial Park and Border Business Park are built to a rural design standard. Only the surveyed parks in Edmonton have roadways that have a curb and gutter design; and  More prestige industrial areas, including the Pylypow Business Park and Henday Industrial Area, have access to public bus transit and have sidewalks to enhance pedestrian circulation.

Watson & Associates Economists Ltd. PAGE 83 Edmonton 2018 Investment Competitiveness Study

Figure 53 Select Industrial/Business Park Transportation Infrastructure

Curb and Access to Pedestrian Industrial Business Park Internal Roadways Gutter Public Access via Roadways Transit Sidewalks

Collectors: 12.4 metre carriage way (rural design standard); local Acheson Industrial Area NO NO NO roadways: 11.4 metre carriage way (rural design standard)

4-lane urban arterial (37 m ROW); Collectors: 24-metre ROW Aurum Industrial Park YES NO NO with a 14.5 metre carriage way (urban standard)

6- lane rural arterial (60m) and local roadways (rural design Border Business Park NO NO NO standard)

Collectors: 24-metre ROW with a 14.5 metre carriage way (urban Pylypow Business Park standard); local roadways: 20-metre ROW with 11.5 metre YES YES YES carriage way (urban standard) Collectors: 24-metre ROW with a 14.5 metre carriage way (urban Henday Industrial Park standard); local roadways: 20-metre ROW with 11.5 metre YES YES YES carriage way (urban standard)

Sturgeon Industrial Park Local roadways 11.5 metre carriageway NO NO NO

Collectors: 24-metre ROW with a 13.5 metre carriage way (urban Laurin Industrial Park NO NO NO standard) Source: Watson & Associates Economists Ltd.

Utilities infrastructure within each park is summarized in Figure 54. Key observations include:

 All parks surveyed have municipally supplied water and sanitary sewers;  Watermain trunks typically range between 300 mm and 400 mm in diameter;  Sanitary sewer trunks typically range between 300 mm and 600 mm in diameter;  Water and sanitary trunk widths tend to be the largest in newer industrial areas and in industrial parks accommodating a larger share of medium and heavy industrial uses, such as Aurum Industrial Park;  Stormwater management facilities in more urban prestige industrial areas consist of storm sewers and a series of retention ponds. More general industrial areas rely on culverts and drainage channels in conjunction with retention ponds;  A number of newer parks, including Aurum Industrial Park and Laurin Industrial Park, utilize enhanced wetlands as retention ponds;  All parks surveyed offer street lighting; and  The surveyed parks in Edmonton as well as the Laurin Industrial Park provide underground hydro lines.

Watson & Associates Economists Ltd. PAGE 84 Edmonton 2018 Investment Competitiveness Study

Figure 54 Select Industrial/Business Park Utilities Infrastructure

Underground Street Industrial Business Park Municipal Servicing Water Mains Sewer Mains Stormwater Management Hydro Lines Lighting 150-410 mm (300 200-675 mm (250 Retention ponds. Culverts and Acheson Industrial Area Partly municipally serviced NO YES mm min.1) mm min.1) drainage channels.

Storm sewers with retention Aurum Industrial Park Full municipal water/sewer YES YES 400 mm 600 mm ponds consisting of naturalized wetland.

Storm sewers and retention Border Business Park Full municipal water/sewer NO YES 300 mm NA ponds.

Storm sewers and retention ponds. A series of bio-swales Pylypow Business Park Full municipal water/sewer YES YES 300 mm 300-450mm will also contribute to run-off and drainage control.

Storm sewers and retention Henday Industrial Park Full municipal water/sewer YES YES 300 mm NA ponds.

Culverts and drainage channels. Sturgeon Industrial Park Partly municipally serviced NO YES 200-350 mm 100-300 mm Stormwater management plan completed.

Retention ponds including Laurin Industrial Park Full municipal water/sewer YES YES 300mm 450 mm enhanced wetland storm facility. Culverts and drainage channels.

Source: Watson & Associates Economists Ltd. 1. Minimum requirement for new industrial development 5.7 Observations: Competitive Position of City of Edmonton Industrial Lands Relative to Surrounding Market Area

Edmonton represents an employment hub for the surrounding regional market area, which is demonstrated by the City’s relatively high employment activity rate, strong share of non-residential tax assessment and steady employment growth rate relative to the Edmonton Metropolitan Region as a whole. The City’s industrial areas are typically developed to a high urban design and servicing standard relative to many of the industrial business parks within the surrounding market area. For this reason, development costs associated with industrial land prices and off-site levies and industrial property taxes are higher on average in the City of Edmonton than the surrounding municipalities surveyed within the Edmonton Metropolitan Region.

Watson & Associates Economists Ltd. PAGE 85 Edmonton 2018 Investment Competitiveness Study

Metropolitan Region relative to recent industrial absorption, which places it in a more unfavourable position from a market choice perspective. 6. Detailed Development Cost Competitiveness Analysis 6.1 Overview

A significant factor influencing business decisions on where to locate is the cost competitiveness (both capital investment and operating costs) of the development in relation to market demand and potential return on investment. The cost competitiveness of development on industrial lands is examined herein through a series of pro-forma financial analyses assessing the cost of constructing and operating various prototypical industrial and commercial developments within the City of Edmonton’s South/Southeast and Northwest Districts, as well as the EETP, in comparison to select locations in comparator municipalities in the Edmonton Metropolitan Region that directly boarder the City of Edmonton. This includes:

 Leduc County (Nisku);  Parkland County (Acheson);  Strathcona County (Sherwood Park);  City of St. Albert; and  Sturgeon County (Sturgeon Industrial Park).

For the purposes of this exercise, three prototypical developments were assessed, including a 200,000-sq.ft. manufacturing facility, a 300,000-sq.ft. distribution/logistics centre and a 50,000-sq.ft. multi-tenant commercial building. The physical characteristics of the three-building typologies and their respective land requirements are summarized in Figure 55.

Watson & Associates Economists Ltd. PAGE 86 Edmonton 2018 Investment Competitiveness Study

Figure 55 Prototypical Building Typologies

Floor Land Area Building GFA Building Type Space Net (sq.ft.) Net ha Index Acres Manufacturing Facility 200,000 30% 6.2 15.3 Distribution/Logistics Centre 300,000 40% 7.0 17.2 Multi-Tenant Commercial 50,000 35% 1.3 3.3 Source: Watson & Associates Economists Ltd. 6.2 Development Cost/Annualized Cost Comparative Analysis Framework

The cost competitiveness of the select prototypical industrial/office developments was assessed through a review of total development cost and the impact of operating cost (including property taxes and utilities costs) across the comparator municipalities.

In the generation of the total development cost of the prototypical developments (expressed in dollars per sq.ft.), the following input costs were included:

 Land Cost – average price of serviced vacant industrial land per acre based on market data, multiplied by the acreage requirement based on an assumed floor space index (FSI), e.g. 30%, divided by the GFA for the building size being considered (e.g. 200,000 sq.ft.);  Construction Costs1 – reflects hard construction costs (e.g. materials, labour) and soft costs (e.g. engineering, consulting services) – average construction costs per sq.ft. vary by development type and size (i.e. industrial or commercial and building GFA) but are held constant across all geographic locations surveyed;  Off-site Levies – on a sq.ft. basis, calculated based on the current municipal schedules;  Building Permit Fees – on a sq.ft. basis per current municipal schedules; and

1 Construction costs derived from various market sources including the RSMeans Square Foot Costs by Watson & Associates Economists Ltd. Construction costs vary by municipality based on location factors provided in 2018 RSMeans Building Construction Costs data.

Watson & Associates Economists Ltd. PAGE 87 Edmonton 2018 Investment Competitiveness Study

 Developer Project Profit – a flat percentage of the total cost (land + construction + off-site levies + building permit fees per sq.ft.) at 5%.

The total development cost was then annualized1 to determine the average annual cost of developing a building over a defined time period (i.e. 25 years) in order to compare with annual operating costs.

Annual operating costs for each prototypical development were determined based on an assessment of the following:

 Utility Costs – Important operating costs for businesses are utility costs, particularly for high consumption users. For the purposes of this assignment, this includes the cost of water/wastewater, electricity and natural gas. Consumption rates for each prototypical development were determined on an annual GFA per sq.ft. basis and held constant across all geographic locations. Annual costs were determined in accordance with the following: o Water/wastewater costs – multiplying the annual consumption by the average cost per cubic metre within each municipality, reflected on a sq.ft. basis; o Electricity costs – multiplying the annual consumption by the average cost per kWh within each municipality, reflected on a sq.ft. basis; and o Natural gas costs – multiplying the annual consumption by the average cost per cubic metre within each market, reflected on a sq.ft. basis.  Property Taxes – Property taxation estimates for the comparator municipalities were based on approximate area-specific assessment values utilizing current local taxation rates. Property assessment values within the South/Southeast and Northwest Districts were derived based on a survey of comparable buildings within the City of Edmonton.2 Estimated assessment values for comparable developments within the EETP and the other comparator municipalities were derived from the City of Edmonton assessment survey data, adjusted

1 Annualized cost determined using an annualization factor of 6.5% which is based on a 25-year period and discount rate of 4.1% which is representative of industry trends. 2 Survey consisted of manufacturing, distribution/logistics and multi-tenant commercial properties across the City of Edmonton and utilized as the basis for assessment for Northwest and South/Southeast Edmonton.

Watson & Associates Economists Ltd. PAGE 88 Edmonton 2018 Investment Competitiveness Study

proportionally based on the development cost differential between the South/Southeast and Northwest Districts and the comparator locations.

The annual operating costs (i.e. property taxes and utility costs) were combined with the annualized development costs to generate the total annualized cost per sq.ft. within each location surveyed.

6.3 Development/Annualized Cost Comparative Assessment

The following summarizes the average development costs and total annualized costs (expressed on a per sq.ft. basis) of the three prototypical buildings within Edmonton in contrast to the comparator municipalities. Detailed results are presented in Appendix A.

Development Costs

Figure 56 summarizes the average development cost (expressed on a per sq.ft. basis) for the three prototypical developments within the City of Edmonton in relation to the comparator municipalities. Key observations include the following:

 For the three prototypical developments, Edmonton’s South/Southeast and Northwest Districts have the highest development costs of the municipalities surveyed. Development costs within the EETP are moderately more cost competitive but slightly higher than the survey average. o For a prototypical 200,000-sq.ft. manufacturing facility, Edmonton’s South/ Southeast and Northwest Districts have an average development cost of $183 and $179 per sq.ft., respectively, moderately higher than the survey average of $166 per sq.ft. In comparison, development costs in the EETP average $177 per sq.ft.; o With respect to distribution/logistics centres, development costs in the South/Southeast and Northwest Districts average $135 and $131 per sq.ft., respectively, which is marginally higher than the survey average of $121 per sq.ft. Development costs in the EETP average $130 per sq.ft.; o For the prototypical multi-tenant commercial development, the cost of development in the South/Southeast and Northwest Districts average $290 and $286 per sq.ft., respectively, marginally higher than the survey average of $275 per sq.ft. In comparison, average development costs in the EETP are $284 per sq.ft.

Watson & Associates Economists Ltd. PAGE 89 Edmonton 2018 Investment Competitiveness Study

 With respect to development costs, Strathcona County, Leduc County and Parkland County are moderately more cost competitive than the South/Southeast and Northwest Districts and the EETP. Sturgeon County has notably lower development costs than the City of Edmonton, while development costs in St. Albert are comparable to the EETP and marginally lower than in the South/Southeast and Northwest Districts.  The relatively higher industrial development costs within the City of Edmonton are largely attributed to the City’s higher industrial land prices and off-site levies compared to the other municipalities surveyed.  Edmonton’s relative cost competitiveness is more favourable for multi-tenant commercial development than for manufacturing and distribution/logistics development. This is attributed to the lower share of total development costs that land prices and off-site levies represent.

Watson & Associates Economists Ltd. PAGE 90 Edmonton 2018 Investment Competitiveness Study

Figure 56 Average Total Development Costs

Development Cost of 200,000 sq. ft. Development Cost of 300,000 sq. ft. Development Cost of 50,000 sq. ft. Manufacturing Facility Distribution/Logistics Centre Multi-Tenant Commercial Building

Edmonton - South/Southeast $183.31 Edmonton - South/Southeast $134.59 Edmonton - South/Southeast $290.13

Edmonton - Northwest $178.77 Edmonton - Northwest $131.18 Edmonton - Northwest $286.24

Edmonton - EETP $176.59 Edmonton - EETP $129.54 Edmonton - EETP $284.37

St. Albert $176.56 St. Albert $129.53 St. Albert $284.36

Strathcona County Strathcona County Strathcona County $168.91 $123.79 $277.67 (Sherwood Park) (Sherwood Park) (Sherwood Park)

Leduc County $158.79 Leduc County $116.59 Leduc County $269.11

SurveyAverage

SurveyAverage SurveyAverage

Parkland County (Acheson) $155.17 Parkland County (Acheson) $113.48 Parkland County (Acheson) $265.71

Sturgeon County $127.80 Sturgeon County $92.95 Sturgeon County $242.30

$- $50.00 $100.00 $150.00 $200.00 $- $50.00 $100.00 $150.00 $- $100.00 $200.00 $300.00 Total Cost of Development (per sq. ft.) Total Cost of Development (per sq. ft.) Total Cost of Development (per sq. ft.) Source: Watson & Associates Economists Ltd. Source: Watson & Associates Economists Ltd. Source: Watson & Associates Economists Ltd.

Watson & Associates Economists Ltd. PAGE 91 Edmonton 2018 Investment Competitiveness Study

Total Annualized Costs

Total annualized costs (development and operating costs) for the three prototypical developments in the City of Edmonton and the comparator municipalities are summarized in Figure 57. Key findings include the following:

 Of the surveyed municipalities, total annualized industrial development costs are highest in Edmonton, with costs marginally higher than St. Albert and Strathcona County for the prototypical manufacturing facility, and marginally higher than St. Albert for the prototypical distribution/logistics centre and multi-tenant commercial buildings. Leduc County and Parkland County have notably lower total annualized costs, with the lowest total annualized costs in Sturgeon County.  The variation in total annualized costs varies by built form;1 the most significant cost differential between Edmonton and the comparator communities is with distribution/logistics centres, followed by the prototypical manufacturing facility. The least variation in annualized costs exists with the multi-tenant commercial development.  For the prototypical manufacturing development, average total annualized costs in the South/Southeast and Northwest Districts and the EETP are $19.62, $19.33 and $19.24 per sq.ft., respectively, which are marginally higher than the survey average of $17.85 per sq.ft.  Average total annualized costs for the prototypical distribution/logistics centre within the South/Southeast and Northwest Districts and the EETP are $12.37, $12.15 and $12.27 per sq.ft., respectively. This is compared to the survey average of $11.06.  With respect to the multi-tenant commercial development facility, total annualized costs are marginally higher than the survey average of $22.46 per sq.ft., averaging $24.77 in the South/Southeast District, $24.52 in the Northwest District and $24.30 in the EETP.  While utility costs within Edmonton are similar to that of the comparator municipalities, property taxes in Edmonton are significantly higher than in the other surveyed markets. This is attributed to higher tax rates and higher assessment values in the City of Edmonton than in the comparator municipalities.

1 Includes permanent buildings and structures on the land.

Watson & Associates Economists Ltd. PAGE 92 Edmonton 2018 Investment Competitiveness Study

Figure 57 Average Total Annualized Costs

Total Annualized Cost of 200,000 sq. ft. Total Annualized Cost of 300,000 sq. ft. Total Annualized Cost of 50,000 sq. ft. Manufacturing Facility Distribution/Logistics Centre Multi-Tenant Commercial Building

Edmonton - South/Southeast $19.62 Edmonton - South/Southeast $12.37 Edmonton - South/Southeast $24.77

Edmonton - Northwest $19.33 Edmonton - EETP $12.28 Edmonton - Northwest $24.52

Edmonton - EETP $19.24 Edmonton - Northwest $12.15 Edmonton - EETP $24.30

Strathcona County $17.97 St. Albert $11.23 St. Albert $22.57 (Sherwood Park)

Strathcona County Strathcona County St. Albert $10.86 $21.68 $17.76 (Sherwood Park) (Sherwood Park)

Parkland County (Acheson) $16.88 Parkland County (Acheson) $10.68 Parkland County (Acheson) $21.11

SurveyAverage

SurveyAverage SurveyAverage

Leduc County $16.65 Leduc County $10.05 Leduc County $20.88

Sturgeon County $15.37 Sturgeon County $8.83 Sturgeon County $19.83

$- $5.00 $10.00 $15.00 $20.00 $- $5.00 $10.00 $15.00 $- $10.00 $20.00 $30.00 Total Annualized Cost (per sq. ft.) Total Annualized Cost (per sq. ft.) Total Annualized Cost (per sq. ft.)

Source: Watson & Associates Economists Ltd. Source: Watson & Associates Economists Ltd. Source: Watson & Associates Economists Ltd.

Watson & Associates Economists Ltd. PAGE 93 Edmonton 2018 Investment Competitiveness Study

6.4 Observations

While the cost disadvantage is a concern, the development standards and levels of service provided in the South/Southeast and Northwest Districts tend to be higher than in most of the comparator municipalities, which helps justify the higher costs. Further, the development costs within the EETP may be lower than identified herein if lower development standards within the park that are currently being considered are adopted.

The analysis suggests that the City of Edmonton is at a moderate cost disadvantage for general industrial land-expansive development such as manufacturing and distribution/logistics, but it exhibits only a marginal cost disadvantage for denser, prestige uses such as office or multi-tenant commercial/industrial developments. Further, these prestige uses are likely willing to pay a higher premium to be located in areas with higher development standards and greater access to services and amenities. In contrast, more general industrial development is at a greater cost disadvantage in the City of Edmonton and, given its locational needs, it is less likely to pay a premium to be located in the City. This is particularly true for low-order, land-expansive uses such as modular yards/laydown yards which have large land requirements and are more sensitive to land prices.

1 Includes permanent buildings and structures on the land.

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7. Assessment of Edmonton’s Industrial Districts

A major factor in the future competitiveness of Edmonton’s economic base is dependent, in part, on the attributes of its industrial areas. Building on the profile of industrial areas provided in Chapter 4 and the cost of development presented in Chapter 5, this section provides a comprehensive assessment of Edmonton’s industrial districts and their relative competitive position to accommodate forecast industrial development over the next 10 years. For each industrial district, a review of short- to medium-term development opportunities has been provided by active industrial/business park.

7.1 Industry Sector Requirements

Building on the industry sector opportunities analysis set out in Chapter 2, Figure 58 summarizes the broad infrastructure and site requirements of the City’s target industry sectors on industrial lands.

At both the regional and local levels, location requirements of an industry can vary considerably depending on the nature of the employment sector/use. Employment sectors typically situated in industrial areas have varying site-specific requirements. To be successful in attracting and retaining businesses in key established and emerging industry sectors, Edmonton’s industrial areas need to have the corresponding attributes and features.

Figure 58 Employment Sector Infrastructure and Site Requirements

Employment Sector Requirements  Access to major highways  Access to skilled and unskilled labour force pool  Proximity to markets and related industry clusters Manufacturing  Competitive land prices  Market choice in the range of size of development sites  Expansion potential  Buffers from surrounding non-industrial uses  General or prestige setting

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Employment Sector Requirements  Large contiguous land parcels  Access to major highways/heavy load corridors  Rail access  Access to raw materials Petro-chemical Sector  Expansion potential  High physical separation/extensive buffering from non- compatible uses  Low image requirements  Provision for laydown yards, open storage  Low land prices Knowledge-based (i.e.  High development standards Professional Services,  Access and exposure to major highways Information  Access to on-site amenities and proximity to off-site Technology, Finance services and Insurance)  Access to skilled labour  Access to major highways  Excellent access/traffic circulation for heavy truck traffic  Truck access, loading/unloading requirements  Competitive land prices Wholesale Trade/  Availability of large tracts of land Warehousing and  Flexibility in zoning, parcel configuration Logistics  Expansion potential  Compatible surrounding land uses  Intermodal transportation potential  Proximity to markets  Ceiling height (typically 30 to 50+ ft.)  Buffers from surrounding non-industrial uses  Access to skilled and semi-skilled labour force  Competitive land prices Construction  Proximity to customer base  Market choice in the range of size of development sites  Provision for open storage

The relative importance of these attributes is evolving in response to structural changes in the macro-economy which is impacting industrial and office development patterns within the Edmonton Metropolitan Region and more broadly in Alberta. Being competitive in today’s “new economy” requires new approaches to how employment areas are planned and developed.

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With respect to industrial development, industrial activity is increasingly centred on production processes that are time-sensitive, driven by just-in-time manufacturing, e- commerce and an increasingly globalized environment. As a result, the location and site requirements within the industrial sector continue to evolve. For the Goods Movement sector, a major growth sector, the growing inter-dependence of companies and their suppliers continues to increase the importance of this integrated business process through various modes of transportation. In turn, this drives the need for more, bigger and better-located warehouses and logistics facilities. As such, large flexible tracts of land are required for large warehouses, storage yards and future expansion. Locational requirements are typically focused on direct access to distribution channels. This means that access to transportation infrastructure is critical, including access to major highways and intermodal facilities. Given that these facilities tend to be land- extensive, competitive land costs are also an important consideration in site selection.

With an increasing emphasis on the “knowledge-based” and/or “creative class” economy, office development is becoming an increasingly dominant built form. Within the office sector, office development patterns are evolving in response to the needs of office tenants. Office tenants are increasingly looking for access/proximity to high-order transit and services/amenities as well as environments that feature mixed-use development and offer opportunities for live/work. The quality and location of new office space are considered very important tools to attract and retain talent. While development and operating costs on location decisions for office development is important, it is less evident than some of the other factors identified above.

7.2 Industrial Areas Strengths, Weaknesses, Opportunities and Challenges Analysis

As part of this study, Edmonton’s industrial districts were reviewed through a strengths, weaknesses, opportunities, challenges (SWOC) analysis as summarized in Figure 59 based in part on the required attributes of industrial/business parks.

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Figure 59 Edmonton Industrial Districts SWOC Analysis

Northwest District South/Southwest District Northeast District Edmonton Energy and Technology Park  Large, well established  Excellent highway access via  Access/proximity to Alberta’s  Located in Alberta’s Industrial industrial precinct. Highway 2, Anthony Henday Industrial Heartland and Heartland.

 Vibrant and active development Drive and Whitemud Drive. Edmonton Metropolitan  Offers significant long-term market comprised of a number  Proximity/access of South Region energy sector cluster. industrial land supply of developers and industrial/ Edmonton area to Edmonton  Highly attractive for energy- opportunities to parks. International Airport. related sectors particularly accommodate growth.  Broad market choice with  Proximity/access of South larger scale developments.  Caters to a broad range of largest shovel-ready supply in Edmonton area to CP intermodal  Excellent access to sectors through varying Edmonton. facility. Yellowhead Highway and industrial precincts.  Area is well connected to  Broad range of market Anthony Henday Drive.  Planned full servicing which regional markets via opportunities ranging from  Competitive land prices. will offer water and Strengths/ Opportunities Yellowhead Highway, Anthony general industrial in the wastewater to high demand Henday Drive and Highway Southeast to highly prestige users, which is unique 16A. parks in the South. compared to product offerings  Proximity to High Load Corridor.  South Edmonton industrial areas in other areas of Alberta’s  Proximity/access to CN highly prestige with strong mix of Industrial Heartland. intermodal facility. employment-supportive uses.  Unique eco-industrial model.  In proximity to Edmonton urban area offering access to large labour force.  Located close to High Load Corridor with direct access to Fort McMurray.  Excellent highway connections with direct access to Anthony Henday Drive and Highway 15.  Offers rail access.

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Northwest District South/Southwest District Northeast District Edmonton Energy and Technology Park  Diminishing vacant industrial  Limited shovel-ready lands which  Limited land supply  Less competitive with respect land supply opportunities which constrain market choice, opportunities. to cost of development than will limit development potential especially for larger sites in the  Limited marketability to other municipally serviced post-2028. Southeast District. sectors beyond medium and locations in Alberta’s

 Strong market competition from  Longer-term industrial land heavy industries related to Industrial Heartland (e.g. Acheson Industrial Area and in supply somewhat limited relative energy sector. Sturgeon County) and rural the medium and longer term to historical absorption trends,  Area lacks the critical mass locations in the AIH, due to from St. Albert. indicating that accommodating and contiguous land relatively high land prices and  High cost of development and growth over the latter half of the development patterns of the off-site levies. operating environment forecast period may be South/Southeast and  New greenfield area with no attributed to high industrial land challenging. Northwest Districts. existing industrial base may prices, off-site levies and  High cost of development and result in slow uptake of property taxes. operating environment attributed absorption in initial years. to high industrial land prices, off- Weaknesses/ Challenges site levies and property taxes.  Increasing competition of prestige industrial/business parks in Leduc County and City of Leduc.

Watson & Associates Economists Ltd. PAGE 99 Edmonton 2018 Investment Competitiveness Study

7.3 Assessment of Competitiveness and Investment Readiness of Industrial Districts

Building on the analysis completed in sections 7.1 and 7.2, the City’s key industrial/ business park areas with notable land supply opportunities are assessed herein to better understand their potential to accommodate future industrial/office growth.

Consideration has been given to the following:

 Physical/economic characteristics, which include the character of existing industrial base, geographic location, and continuity and delineation of the industrial area;  Access/circulation, which includes an assessment of the accessibility of each site via road infrastructure and the visibility of the area to major transportation routes;  Development opportunities, including vacant land supply, available lots on the market, parcel configuration and mix, servicing and site expandability; and  Target sector attractiveness, including the sectors which the industrial area is best suited to accommodate, and the strength of that area with regard to those sectors.

Northwest Industrial District

Since 2011, the Northwest District has seen significant industrial development activity in greenfield areas within proximity to Anthony Henday Drive. During this time, a number of notable industrial/business parks have been largely developed. This includes Horizon Business Park (Hopewell Developments), Yellowhead Crossing II (Bentall Kennedy), and Northwest Business Park (One Properties).

In the short to medium term, it is expected that the majority of development activity on industrial lands within the Northwest District will be accommodated within the following industrial/business parks:

 Mistatim Industrial – Golden West Business Park, Westland Industrial Park, Pinnacle Business Park;  Rampart Industrial – Rampart Industrial Park;  Kinokamau Industrial – Northport Business Park; and  Winterburn Industrial Area – Henday Industrial Park, Stony Industrial Park.

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These parks, and their respective strengths, weaknesses/challenges and development opportunities, are summarized in Figure 60. As shown, the parks offer notable development opportunities over the short to medium term and are highly competitive and marketable.

The Northwest District has additional large contiguous blocks of vacant industrial lands which may become available for development by 2028. These lands are concentrated in the Kinokamau Industrial and Winterburn Industrial neighbourhoods. The lands in the Winterburn area are well-located along the south and north sides of the Yellowhead Highway and Highway 16A, respectively, and offer strong development opportunities, helping to ensure that the Northwest District remains competitive over the next decade and beyond.

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Figure 60 Northwest Industrial District – Short- to Medium-Term Development Opportunities

Industrial/Business Strengths Weaknesses/Challenges Development Opportunities Park  Sustainable park design to be  40 net ha (100 net acres) of constructed to full urban standards. shovel-ready land supply.  Lands have excellent access/proximity  Light industrial and commercial Golden West Business to Anthony Henday Drive. development (office, research and Park – QUALICO  Two access points to major arterial  Relatively high land prices ($1 development, distribution/ Commercial (Mistatim roadways – 137th Avenue and 170th million per acre). logistics). Industrial) Street.  10 small (1 to 3 ha or 2 to 7  Development to be anchored by a acres) parcels available for large development housing Acklands development. Grainger.  Shovel-ready land supply.  Mid-sized (45 gross ha or 111 gross  Light industrial with opportunities acres) largely unbuilt industrial/ for warehousing, multi-tenant business park with notable medium- industrial and commercial Pinnacle Business Park term development opportunities.  Limited shovel-ready industrial development. (Mistatim Industrial)  Access/proximity to Anthony Henday lands.  240,000 sq.ft. of built space Drive.  Buildout building GFA.  Access/frontage to 156 Street and 137  Approx. 25 net ha (62 net acres) Avenue. of vacant industrial land.  Large (150 gross ha or 371 gross acres) industrial park of critical mass.  Light/business park development  Park contains recently constructed well suited for distribution/ 400,000 sq.ft. of GFA. logistics, warehousing, multi-  Access/proximity to Anthony Rampart Industrial Park  Offers broad range of development tenant industrial condos. Henday Drive. (Rampart Industrial) opportunities.  75 net ha (185 net acres) of  Current visibility/access to arterial  Future access/frontage to Campbell vacant industrial land including 27 roadways somewhat limited. Road. net ha (66 net acres) of shovel-  Significant short-term and long-term ready land available for sale. development opportunities.  Potential for rail spur (via CN rail line).

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Industrial/Business Strengths Weaknesses/Challenges Development Opportunities Park  Existing industrial park with  Mid-sized established industrial park 840,000 sq.ft. of industrial space (two-thirds built out) with key anchor built with 100,000 sq.ft. available tenants (e.g. Layfield Canada Inc., for lease. Buildout size of Northport Business Park Medline). 1,200,000 sq.ft. of space. – Oxford Properties  Limited sites remaining for  Strong development activity over past  Development well suited for (Kinokamau Industrial) development – build to suit1 only. five years of large-scale industrial wholesale trade, distribution/ buildings (multi-tenant industrial). logistics and light manufacturing.  Access/proximity to Anthony Henday  17 net ha (48 net acres) of Drive. shovel-ready lands remaining – two sites.  Light/business park development  Located at the juncture of Anthony oriented to accommodate large- Henday Drive and Yellowhead scale distribution/logistics, multi- Highway – excellent access/proximity tenant industrial development.  Located outside core industrial area to major highways.  85 net ha (210 net acres) of Henday Industrial Park – located to the east and south of  Strong development activity since vacant industrial land including 6 One Properties Anthony Henday Drive. 2015 totalling 420,000 sq.ft. of building net ha (15 net acres) of shovel- (Winterburn) GFA.  Oriented to largely one product ready land. type (large-scale single and multi-  Large park of critical mass which is  Expected to accommodate tenant industrial buildings). largely undeveloped. approximately 4.0 million sq.ft. of  Relatively competitive land prices industrial GFA at buildout. ($600,000-$700,000 per acre).  Lot sizes range from 7 to 11 ha (17 to 27 acres) in size.  Immediate access to Anthony  Mix of light, medium and business Henday Drive limited to inbound zoning with potential to Stony Industrial Park –  Access/proximity to Anthony Henday from north only and outbound from accommodate construction, light Walton International Drive. south only. manufacturing, warehousing (Winterburn)  Flexible lot configuration providing  General character of neighbouring uses. broader market choice. industrial areas detracts from its  Estimated 24 net ha (59 net marketability. acres) of vacant industrial land.

1 Build to suit refers to a development scenario whereby the developer builds to the tenant’s specifications and pays for construction of the building, and leases the space to the tenant.

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Industrial/Business Strengths Weaknesses/Challenges Development Opportunities Park  Park’s relatively small size does not  Lots range in size from 1 to 10 ha achieve desired critical mass. (2 to 25 acres).  Land prices ($750,000 per acre) less competitive than neighbouring locations.  Not shovel-ready – timing of development unknown.

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South/Southeast Industrial District

The South/Southeast District experienced a decline in development activity over the past decade due to diminishing greenfield supply opportunities. Relative to the Northwest District, the area has limited opportunities to accommodate industrial development. Since 2011, the District has experienced absorption in many of its most marketable industrial/business parks, including Cityview Business Park, South Central Business Park, 50th Street Business Park, Cornerstone Business Park, Maple Ridge Industrial Park, Pylypow Industrial Park and Gateway Business Park. With the exception of the Gateway Business Park and Pylypow Industrial Park, these areas are built out or approaching buildout with limited development opportunities remaining.

Shovel-ready supply opportunities in prospective industrial/business parks in the South/ Southeast District are relatively limited, particularly in the Southeast. In the short to medium term, it is expected that the majority of development activity on industrial lands within the South/Southeast District will be accommodated within the following industrial/business parks:

 Ellerslie Industrial Area – Gateway Business Park and Southport Crossing Business Park;  Pylypow Industrial Area – Pylypow Industrial Park; and  Maple Ridge Industrial – Maple Ridge Industrial Business Park.

A SWOC of these parks is provided in Figure 61. As shown, the parks are highly marketable and are expected to achieve relatively high development activity over the next decade. In order to meet forecast demand, new shovel-ready industrial lands will need to come online over the next few years. The South Edmonton area contains large contiguous blocks of vacant industrial land, located between the Gateway Business Park and Southport Crossing Business Park which are highly marketable. These lands are well-located geographically, in proximity to the new CP intermodal facility and the Highway 2 corridor, and are highly marketable for prestige industrial uses including office, multi-tenant industrial/commercial and distribution/logistics. The development of Ewing Trail SW opens up these lands for development over the next decade.

Within the southeast part of the District, some large contiguous blocks of vacant industrial land exist along the north side of Whitemud Drive and immediately north of the Pylypow Industrial Park, which are highly marketable for distribution/logistics and

Watson & Associates Economists Ltd. PAGE 105 Edmonton 2018 Investment Competitiveness Study warehousing uses. On the north side of Whitemud Drive, between 34th Street NW and 17th Street NW, two industrial developments are proposed and will likely be developable over the medium term. This includes Whitemud 17 Business Park by Hopewell Developments which is located on a 32 gross ha (70 gross acres) site immediately west of 17th Street NW and is expected to accommodate large-scale industrial and distribution/logistics uses and some multi-tenant commercial uses.

The south part of the Maple Ridge area has significant vacant industrial lands which could be developed over the longer term. This includes the Baramy and AIMCO lands, which total approximately 120 gross ha (297 gross acres) in size. The area is currently zoned Agriculture Industrial Reserve, is unserviced and lacks road connections. The area is marketable for distribution/logistics, warehousing, transportation, construction and manufacturing and small to medium-sized office/shop facilities. The area is in proximity and has exposure to major highways (Anthony Henday Drive and Whitemud Drive).

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Figure 61 South/Southeast Industrial District – Short to Medium Term Development Opportunities

Industrial Strengths Weaknesses/Challenges Development Opportunities Neighbourhood  Highly prestige business park of critical mass.  Broad range of prestige industrial/  Park has experienced significant commercial uses including office, absorption activity over the past five years. Gateway Business research and development, multi-  Access to Highway 2 from the south part of  No shovel-ready supply currently Park (Ellerslie tenant industrial/commercial. the park greatly improved with extension of available. Industrial/Summerside)  60 gross ha (150 gross acres) of Ewing Trail to 41st Avenue SW.  High cost of industrial land. unserviced vacant land available for  Proximity/access to employment supportive future development. uses (e.g. restaurants, accommodations).  Proximity to Edmonton International Airport and CP intermodal facility.  Highly prestige, master planned business park.  Potential for 2 million sq.ft. of industrial and commercial space with 390,000  Moderate-sized (57 gross ha or 141 gross sq.ft. of GFA currently available for acres) business park which is development Southport Crossing leasing. ready. Business Park - Bentall  Distance from the urban core with  Broad range of large-scale single and  Excellent access to Highway 2 (via Kennedy (Ellerslie limited employment-supportive multi-tenant industrial catering to interchange at 41st Avenue). Industrial) uses in the immediate area. distribution/logistics and warehousing,  Park intersected by recently completed manufacturing as well as office uses. Ewing Trail SW.  Approximately 31 net ha (77 net  Adjacent to CP intermodal facility. acres) of developable land.  Proximity to Edmonton International Airport.

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Industrial Strengths Weaknesses/Challenges Development Opportunities Neighbourhood  Highly successful park which has  Distribution, logistics, multi-tenant experienced strong development activity industrial condos, flex space (office/ since 2011. warehouse), manufacturing and Pylypow Industrial Park  Prestige well-established industrial park  Diminishing supply opportunities construction. (Pylypow Industrial) with a critical size mass. to accommodate long-term  26 net ha (64 net acres) of vacant  Proximity/access to employment supportive growth. industrial land supply available uses. (shovel-ready).  Excellent access to Whitemud Drive.  Typical parcel size 1 to 8 ha (2 to 20  Excellent internal circulation. acres).  Well suited for light and medium  80 ha (197 acre) development site of Maple Ridge Industrial  No direct access to Anthony industrial uses including wholesale critical mass. Business Park - AIMCo Henday Drive. trade, distribution/logistics and  Market choice – lease and build to suit (Maple Ridge  Not adjacent to existing industrial/ manufacturing. options and individual lot sales. Industrial) business parks in the Southeast  Currently pre-leasing.  Access to 17th Street to the west with District.  Planned park with buildout of 2.5 access to Whitemud Drive. million sq.ft. of industrial GFA.

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Northeast Industrial District

The Northeast District has the most limited opportunities to accommodate future industrial development within Edmonton. While the Aurum Energy Park has been highly successful over the past five years in attracting development, a large share of the park is developed. Gilead Sciences recently established a 184,000 sq.ft. lab and manufacturing facility in the Clover Bar area which has helped diversify the economic base of the area. Over the short to medium term, future development in the Northeast District is expected to be concentrated in the Aurum Industrial Park. The park is also expected to accommodate some development over the forecast period. The attributes of these parks are summarized in Figure 62. Longer-term development opportunities in the Northeast District are more limited. A notable longer-term opportunity is the Eco- Industrial Business Park, a redevelopment project located immediately to the southeast of the North Saskatchewan River and west of Anthony Henday Drive.

Edmonton Energy and Technology Park

Building on the regional and local market analysis for industrial development across the Edmonton Metropolitan Region, a more detailed assessment of the EETP’s specialized industrial zones’ relative competitive position and market potential was prepared. The attributes of these zones are summarized in Figure 67.

Watson & Associates Economists Ltd. PAGE 109 Edmonton 2018 Investment Competitiveness Study

Figure 62 Northeast Industrial District – Short to Medium Term Development Opportunities

Industrial/Business Strengths Weaknesses/Challenges Development Opportunities Park  Highly successful industrial park which has experienced strong development activity since 2012.  Diminishing supply of vacant  Medium Industrial and Heavy  Competitive land prices. developable lands. Industrial.  Located in proximity to Alberta’s  Current road access somewhat  Manufacturing, construction, Industrial Heartland and core of the constrained. Direct connection to transportation, laydown yards. Aurum Energy Park - energy sector in the Edmonton Anthony Henday Drive via Aurum Blvd.  62 net ha (153 net acres) of Focus Equities Metropolitan Region. incomplete. developable land of which about half is  Access/proximity to High Load  Some developed parcels poorly shovel-ready. Corridor. utilized, characterized by modular/  Broad range of parcel sizes (1 to 10 ha  Served by 6-lane arterial (Aurum laydown yards resulting in low or 2 to 20 acre lots). Boulevard) with indirect access to employment yields and assessment. Anthony Henday Drive.  Unique product offering in Edmonton context.  Existing industrial base including anchor tenants.  Medium and Heavy Industrial lands.  Immediate access to Anthony Henday Drive.  Well-positioned for energy sector including oil and gas related Eco-Industrial Business  Well-located with respect to energy  Some parcels are brownfield sites and processes, petrochemical Park - Symmetry Asset cluster in the Edmonton Metropolitan may constrain development. manufacturing and transloading Management Region including access to pipelines  Site has not seen any redevelopment facilities. and related infrastructure. activity to-date.  42 net ha (104 net acres) of vacant  On-site power generation and water land available for development. treatment facilities.  On-site rail access.  Competitive land prices.

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Figure 63 Edmonton Energy and Technology Park Industrial Zones

Industrial Strengths Weaknesses/Challenges Development Opportunities Neighbourhood  Offers an industrial market product unique to Northeast Edmonton  Light and Business Industrial along Metropolitan Region. with employment supportive uses.  Opportunity to accommodate  The Northeast Edmonton Metropolitan General Industrial/  Market potential for low-rise office employment-supportive uses which Region has no precedence for prestige Research and commercial, multi-tenant commercial/ can complement/support the broader industrial development which may Development Precinct industrial condominiums, research and EETP. prove challenging for uptake in initial development and commercial  Excellent access/visibility to major phase of development. services. highways (Anthony Henday Drive and Manning Drive).  Proximity to skilled labour force.  Proximity to centre of Edmonton Metropolitan Region’s energy cluster.  Access to competitively priced feed  High land prices and off-site levies stocks. compared to privately serviced lands in  Suitable for heavy industrial uses. other locations in Alberta’s Industrial  Market potential for a range of basic  Access to new High Load Corridor with Heartland makes lands less chemical production such as ethylene, direct connection to Fort McMurray. competitive particularly for land ammonia/urea, methanol, propylene, Petrochemical Precinct  Favourable long-term growth expansive uses. styrene, polystyrene, Biofuels, opportunities for petrochemicals from  Significant competition from other polyethylene, polypropylene, global perspective. municipalities in Alberta’s Industrial Isopropanol, formaldehyde (resins)  Availability of large contiguous land Heartland including Sturgeon County, and plastics. parcels. Strathcona County and Lamont  Well-buffered from non-compatible County. land uses.  Excellent rail connections.  Relatively high development costs (e.g.  Strong growth prospects in goods high land prices and off-site levies)  Moderate development prospects for movement sector (wholesale trade, Logistics Precinct may discourage development of land large-scale distribution/logistics, logistics, transportation). expansive uses. warehousing and transportation uses.  Limited opportunities to accommodate  Not in proximity to regional intermodal Goods Movement uses in other facilities (CN, CP).

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Industrial Strengths Weaknesses/Challenges Development Opportunities Neighbourhood locations in Northeast Edmonton  Northern precinct (along Highway 37) Metropolitan Region. has lower marketability than the south  Southern precinct has excellent access precinct due to distance to Anthony to major highways (Anthony Henday Henday Drive. Drive and Manning Drive).  Relatively high development costs (e.g. high land prices and off-site levies).  Access to labour force.  Strong competition from other locations  Unparalleled opportunities to in Northeast Edmonton Metropolitan  Moderate development prospects for accommodate a range of Region (Aurum Industrial Park, manufacturing related to energy sector manufacturing facilities. Sturgeon Industrial Park (Sturgeon including modular yards, metal product Manufacturing Precinct  Access to municipal servicing (water/ County), Josephburg North Industrial fabrication and construction. wastewater). Area (Fort Saskatchewan)).  Opportunities for advanced  Well buffered from non-compatible  Historically, growth prospects for manufacturing. uses. manufacturing in the City of Edmonton  Access to major highways (Anthony have been relatively limited compared Henday Drive). to other Edmonton Metropolitan Region markets.

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7.4 Observations

 The South/Southeast and Northwest Industrial Districts are highly marketable for a wide range of industrial and non-industrial uses. Both areas offer sufficient supply opportunities to accommodate growth over the next decade;  Opportunities to accommodate further industrial development in the Northeast District are more limited; and  The EETP is competitive with respect to a broad range of light, medium and heavy industrial development and is expected to become an increasingly important component of Edmonton’s industrial lands portfolio over the coming decades. 8. Forecast Employment Growth and Industrial Land Needs, 2018 to 2028

The following provides an assessment of medium-term employment potential for the City of Edmonton to the year 2028 by major employment sector, building on the macro- economic and regional/local non-residential development trends analysis previously discussed in sections 2 through 4. Based on forecast employment growth and anticipated average employment density, a 10-year industrial land demand forecast is provided. Assessing the long-term industrial land demand against the vacant industrial land inventory identified in Chapter 4, a long-term industrial land need assessment (City-wide and by industrial district) has been prepared to the year 2028.

8.1 Forecast Employment Growth, 2018 to 2028

Future demand for industrial lands within Edmonton is ultimately driven by forecast employment growth. A broad range of factors, as discussed in section 2, is anticipated to drive future employment growth in Edmonton over the next decade. These factors will not only impact the rate and magnitude of growth, but they will also influence the form and density of non-residential development and corresponding demand for industrial lands. Based on a comprehensive investigation of local and regional

Watson & Associates Economists Ltd. PAGE 113 Edmonton 2018 Investment Competitiveness Study employment growth drivers and a review of recent economic trends, an updated long- term employment forecast by major sector has been developed.1 The incremental total employment growth over the 2018-2028 period is generally consistent with the latest employment projections provided in the Fall 2018 Economic Update prepared by the City of Edmonton.2 The results of this forecast are summarized below.

As of mid-2018, Edmonton’s employment base is estimated at approximately 534,800 jobs. As shown in Figure 64, over the 2018 to 2028 forecast period, the City’s employment base is expected to expand by approximately 21%, increasing to 572,500 jobs in 2023, and 635,200 jobs in 2028. This represents an average annual growth rate of 1.7% over the 10-year forecast period, lower than historical trends, as illustrated in Figure 65. This updated forecast assumes a lower rate of employment growth over the short to medium term than that reported in the 2015 Investment Competitiveness Study which identified a 2.2% annual growth rate over the 2016-2026 period.

1 The employment base and forecast by major sector (i.e. primary, industrial, commercial and institutional) includes No Fixed Place of Work (NFPOW) employment. The 2015 City of Edmonton Investment Competitiveness Study 2016-2026 forecast did not include NFPOW. 2 November 2018 Edmonton City Forecast, prepared by John Rose, Chief Economist, City of Edmonton.

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Figure 64 City of Edmonton Employment Forecast, 2018 to 2028

700,000 635,200

600,000 572,500 528,095 534,750 492,965 500,000 447,700 388,665 400,000

300,000 Total Employment Total 200,000

100,000

0 2001 2006 2011 2016 2018 2023 2028 Year Source: 2001 to 2016 data based on Statistics Canada Place of Work Data. Forecast (2018 to 2028) is estimated by Watson & Associates Economists Ltd., 2018.

Figure 65 City of Edmonton Annual Average Employment Growth Rates, Historical and Forecast

3.5%

3.0% 2.9%

2.5% 2.1% 1.9% Annual Average 2.0% 1.7%

1.5% 1.4% 1.4%

1.0% 0.6%

0.5% Annual Employment (%) Employment Annual Growth

0.0% 2001-2006 2006-2011 2011-2016 2016-2018 2018-2023 2023-2028 Period Historical Forecast Annual Average

Source: 2001 to 2016 data from Statistics Canada Place of Work data. Forecast is estimated by Watson & Associates Economists Ltd., 2018.

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Figure 66 summarizes the City-wide employment forecast by sector in five-year increments to the year 2028.

Figure 66 City of Edmonton Employment Forecast, 2018 to 2028

Employment1 Year Primary2 Work at Home Industrial3 Commercial Institutional Total 2001 1,170 17,965 109,690 164,345 95,495 388,665 2006 995 19,860 134,385 181,505 110,955 447,700 2011 820 20,130 139,625 194,785 137,605 492,965 2016 965 23,160 147,580 208,165 148,225 528,095 2018 950 24,000 148,500 211,600 149,700 534,750 2023 950 27,550 153,750 226,950 163,300 572,500 2028 950 31,300 164,650 256,250 182,050 635,200 Incremental Growth 2018-2023 0 3,550 5,250 15,350 13,600 37,750 2018-2028 0 7,300 16,150 44,650 32,350 100,450 Source: 2001 to 2016 from Statistics Canada Place of Work data. Forecast is estimated by Watson & Associates Economists Ltd., 2018. 1 Employment forecast includes no fixed place of work. Statistics Canada defines no fixed place of work (N.F.P.O.W.) employees as "persons who do not go from home to the same work place location at the beginning of each shift." Such persons include building and landscape contractors, travelling salespersons, independent truck drivers, etc. 2 Reflects agriculture, forestry, fishing and hunting. 3 Includes mining and oil and gas extraction and support activities.

Figure 67 summarizes the average annual employment forecast by major sector over the forecast period in comparison to historical trends (2001 to 2018). As illustrated, over the 2018 to 2023 period, the City of Edmonton is expected to average 7,550 jobs annually. Over the 2023 to 2028 period, average employment growth is forecast to increase 12,550 jobs per year.

Watson & Associates Economists Ltd. PAGE 116 Edmonton 2018 Investment Competitiveness Study

Figure 67 City of Edmonton Average Annual Employment Growth, 2001 to 2028

14,000 12,550 11,805 12,000

10,000 9,055 7,550 8,000 7,025

6,000

4,000 3,350

2,000

0 Average Annual Employment Employment Growth Annual Average

-2,000 2001-2006 2006-2011 2011-2016 2016-2018 2018-2023 2023-2028 Period Primary Work at Home Industrial Commercial Institutional Source: 2001 to 2016 from Statistics Canada Place of Work. 2018 to 2028 is estimated by Watson & Associates Economists Ltd., 2018.

8.2 Growth Outlook by Industry Sector

Most industrial and office commercial employment (export-based employment), however, is not closely linked to population growth. Employment within these sectors tends to be more influenced by broader market conditions (i.e. economic competitiveness, transportation access, access to labour, and distance to employment markets), as well as local site characteristics such as servicing capacity, highway access and exposure, site size/configuration, physical conditions and site location within

Watson & Associates Economists Ltd. PAGE 117 Edmonton 2018 Investment Competitiveness Study existing and future industrial/business areas throughout the City and the surrounding market area.

While the City’s economy is forecast to continue to steadily shift from goods-producing to services-producing sectors, the industrial sector is still anticipated to represent a key employment sector in Edmonton. Over the 2006 to 2018 period, industrial employment represented 16% of total employment growth in the City. Over the next five years (2018 to 2023), the share of employment growth related to the industrial sector is anticipated to decrease to 14% as a result of the current downturn in the energy sector. Post 2023, the share of employment growth within the industrial sector is expected to rebound moderately to 17% as macro-economic conditions for the energy sector improve and the City’s economy continues to diversify.

With respect to employment growth on industrial lands by broad sector, the following observations are provided.

8.2.1 Oil and Gas

Despite diversification over the last several decades, Edmonton’s economy is still largely tied to prospects directly related to the energy sector. The City also has a high concentration of companies that provide industrial services to the energy sector such as seismic, geological and drilling services. Overall, positive longer-term trends in global demand and a gradual recovery in the oil price are anticipated to lead to continued growth in oil production and oil sands development, albeit at a lower growth rate than anticipated in the past. This is expected to support modest employment growth directly tied to the energy sector, as well as demand for support activities related to the oil and gas sub-sector within Edmonton over the medium to long term.

8.2.2 Manufacturing

Manufacturing remains vitally important to the provincial economy with respect to job growth, and economic output will continue to be a focus of the Edmonton Metropolitan Region and the City of Edmonton economy.

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Looking forward, there will continue to be opportunities for manufacturing in the Edmonton Metropolitan Region. Manufacturing sectors related to food/beverage processing, and pharmaceuticals/medicine and medical device manufacturing, show the strongest employment growth potential within the City of Edmonton over the short term. New manufacturing employment growth is anticipated primarily in small to mid-sized businesses. Over the medium to longer term, fabricated metal manufacturing (largely related to the energy sector) and basic chemical production show continued growth potential. Over the longer term, growing demand is anticipated in clean technology related sectors.

Despite the growth potential, industrial processes have become more specialized, capital/technology-intensive and automated. This means that as the regional manufacturing sector continues to recover, economic output will gradually increase; however, more modest employment growth is anticipated in the manufacturing sector relative to GDP growth.

Over the next five years, net employment growth in the manufacturing sector is anticipated to be low due to the recent economic downturn. Employment growth in the sector is expected to improve over the 2023 to 2028 period. The EETP will also broaden the market choice of potential industrial sites for manufacturing uses within Edmonton, which should encourage development and employment growth in the sector.

8.2.3 Goods Movement (Wholesale Trade, Transportation, Warehousing and Logistics)

The Goods Movement sector is an integral part of the Edmonton Metropolitan Region economy. This sector is accommodated in a range of industrial building typologies reflecting the diverse sub-sectors that comprise the sector. This includes distribution centres, warehouses, fulfillment centres, delivery depots, logistics hubs, corporate office buildings of major logistics companies, trucking terminals, multi-tenant warehouses and terminals, cold storage buildings and transportation yards.

Increased outsourcing of manufacturing production to emerging global markets continues to drive the need for new consolidated, land-extensive warehousing facilities to store and manage the distribution of goods produced locally as well as goods imported from abroad. Demand in the Goods Movement sector is anticipated to continue across the Edmonton Metropolitan Region, particularly in locations where

Watson & Associates Economists Ltd. PAGE 119 Edmonton 2018 Investment Competitiveness Study available industrial lands have strong connectivity to regional transportation infrastructure (i.e. intermodal facilities and major highway access).

The City of Edmonton has historically been highly competitive in the Goods Movement sector with two intermodal facilities (CN facility in Northwest Edmonton and the CP facility in South Edmonton), major highway connections (Trans-Canada Highway and CANMEX corridor), and proximity to the EIA Port Alberta Foreign Trade Zone. Rising development costs and diminishing industrial land supply combined with expanded greenfield opportunities in neighbouring municipalities, however, has shifted a share of development activity to other communities, most notably Acheson and Leduc/Niksu area.

Several factors have been changing the nature of the Goods Movement industry in recent years, including just-in-time manufacturing, e-commerce and globalization. It is expected that the industry will continue to evolve and, in the near-term, the following trends are expected in Canada:

 Just-in-time manufacturing will continue to be the industry norm, placing increasing emphasis on more frequent and smaller deliveries by truck transport;  Automation of distribution centres allows for more vertical storage; however, the need for numerous loading bays will dictate land requirements, and the industry trend is for more and more bays at facilities;  Larger facilities are a continuing trend versus smaller properties; typically, the larger the property, the lower the average employment density;  Locations close to multi-modal facilities continue to be very attractive with access to rail – this is generating increased demand for larger-scale logistics hubs. Intermodal hubs typically require approximately 200 to 300 ha (494 to 741 acres) for intermodal infrastructure and loading/unloading areas. Express terminals are smaller (<100 ha/247 acres);  The increasing growth in e-commerce is anticipated to have a significant impact on employment growth and land demand related to the logistics sector. E- commerce sales in Canada have grown at a rate that is five times the pace of overall growth in retail trade and it is estimated that current online sales account for 6% of total Canadian retail spending. By comparison, US online sales

Watson & Associates Economists Ltd. PAGE 120 Edmonton 2018 Investment Competitiveness Study

account for 9% of total spending.1 Delivery expectations within this sector are increasing on an annual basis. As delivery times decrease, it is anticipated that demand for regional fulfilment centres will increase; and  Reverse logistics – approximately 25% to 30% of online merchandise is returned, which is generating increasing needs for dedicated return centres.

8.2.4 Construction

As previously discussed, the construction sector has been a key component of industrial employment growth for Edmonton. The City of Edmonton’s construction sector has shown strength throughout the previous and current economic downturn driven by continued development activity in both the residential and non-residential sectors.

A large component of the construction sector is associated with employees that have no usual place of work (no fixed place of work). Construction sub-sectors involved in large- scale construction projects typically require land to store equipment and machinery in proximity to major roads and highways. More specialized construction firms may require offices and facilities. Employment in this sector may include a wide-range of job types, including labourers, trades persons and engineers.

Over the forecast period, a portion of industrial employment growth is anticipated to be generated from construction employment, driven by both residential and non-residential development activity within Edmonton and the surrounding area. This includes employment associated with construction of buildings, heavy and civil engineering construction and speciality trade contractors.

8.2.5 Office Employment on Industrial Lands

As previously discussed in Chapters 3 and 4, structural changes in the economy are changing the nature of economic activities on industrial lands and impacting the built form2 and character of industrial areas within the City of Edmonton. In many of the City’s business/light industrial areas the share of office employment has steadily

1 Purolator Logistics. Adapting your Canadian Supply Chain for E-commerce Efficiency. 2015. 2 Includes permanent buildings and structures on the land.

Watson & Associates Economists Ltd. PAGE 121 Edmonton 2018 Investment Competitiveness Study increased. On a City-wide basis, the share of office development activity (in terms of GFA) has roughly tripled since 2001.

Over the next 10 years, demand for standalone low-rise office, research and development facilities, flex office and multi-tenant commercial/industrial space is anticipated to continue to account for a growing share of building GFA. A large portion of demand is anticipated to be driven by growth in knowledge-based employment sectors including business services, and professional and technical services including engineering and environmental services, and research and development.

Flex office space in particular has become a major trend across many markets in Canada, including Edmonton. Flex office space allows occupants flexibility in the use and allocation of space according to operation needs. Tenants of flex office space may include businesses that require a blend of office and industrial site characteristics.

8.2.6 Employment Supportive Uses in Industrial Areas

As previously discussed, the nature of non-residential development activity on industrial lands has evolved over the past 15 years, with an increasing focus on light industrial and office-oriented uses, and less of a focus on medium industrial uses within the South/Southeast and Northwest Districts. With this shift in demand on industrial lands anticipated to continue, it is expected that the share of employment supportive uses (i.e. retail and personal service uses) will gradually increase throughout the City’s light/business industrial areas over the next decade.

8.3 Forecast Industrial Land Demand, 2018 to 2028

This section summarizes total industrial land demand within Edmonton over the next decade (2018 to 2028), based on the employment forecast presented in section 8.2. Building on the long-term employment forecast, anticipated industrial land needs requirements are then identified based on consideration of the following:

 The estimated share of employment growth on industrial lands by ICI (industrial, commercial and institutional);  The estimated share of employment growth on industrial lands to be industrial;  The share of employment accommodated through intensification of developed industrial lands;

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 Existing and forecast density assumptions (i.e. jobs per net ha) for employment on industrial lands; and  Historical and forecast absorption on industrial lands by employment type (i.e. manufacturing, warehousing and distribution, etc.).

In generating forecast industrial land demand, the following steps have been undertaken.

Determine the Amount of Industrial, Commercial and Institutional (ICI) Employment to be Located on Industrial Lands

As previously identified, industrial lands include a broader range of commercial uses (and, to a lesser extent, institutional uses) in addition to traditional industrial development. For example, a number of commercial and institutional uses are permitted on lands designated/zoned industrial lands.

Figure 68 presents the percentage breakdown of City-wide employment growth by major sector which is anticipated to be accommodated on industrial lands over the forecast period (2018 to 2038).1 The allocation by sector is based on a high-level review of recent and forecast development trends in the City of Edmonton.

Figure 68 City of Edmonton Share of Employment Growth on Industrial Lands by Sector, 2018 to 2028

Percentage of Total Employment Employment on Sector Industrial Lands

Industrial 100% Commercial 30% Institutional 10% Source: Watson & Associates Economists Ltd., 2018.

1 “Work at home” employment has been excluded from the industrial land needs analysis, as this employment is not non-residential land based.

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8.3.1 Forecast Employment Growth on Industrial Lands

Figure 69 summarizes anticipated employment on industrial lands over the next 10 years, based on the assumed allocation of growth on industrial lands assigned by ICI. As illustrated below, Edmonton’s industrial lands are anticipated to accommodate 33% of the total employment growth. Over the 2018 to 2038 period, employment growth on industrial lands is expected to total approximately 32,800 jobs.

Figure 69 City of Edmonton Forecast Employment Growth on Industrial Land, 2018 to 2028

Percentage of Total Major Employment Growth on Industrial Employment on Employment Lands Industrial Lands Sector 2018-2023 2018-2028 2018-2028 Primary 0 0 0% Work at Home 0 0 0% Industrial 5,250 16,150 100% Commercial 4,605 13,395 30% Institutional 1,360 3,235 10% Total 11,215 32,780 33% Source: Watson & Associates Economists Ltd., 2018.

8.3.2 Share of Employment Growth on Industrial Lands Allocated by Industrial District

As previously identified, Edmonton has a diversified industrial base and there are opportunities to accommodate future industrial growth in a number of areas including the Northwest, South/Southeast and Northeast Districts and the EETP. Each industrial district has varying land demand prospects and corresponding land-need requirements. As such, it is necessary to complete a separate land demand assessment for each Industrial District.

Based on the SWOC analysis of the City’s Industrial Districts provided in Chapter 7, an allocation of employment growth on industrial lands has been determined by geographic area, as presented in Figure 70. As shown, over the 2018 to 2023 period, the South/Southeast and Northwest Districts are anticipated to accommodate the majority of Edmonton’s industrial lands development; however, the Northwest and South/Southeast Districts’ share is expected to gradually decline as greenfield opportunities diminish. The EETP is expected to gradually capture a growing share of

Watson & Associates Economists Ltd. PAGE 124 Edmonton 2018 Investment Competitiveness Study the Edmonton industrial lands’ development market over the 2023 to 2028 timeframe, with 25% of the City-wide share of employment growth on industrial lands.

Figure 70 Forecast Proportionate Share of Employment on Industrial Lands by Industrial District, 2018 to 2028

Share of Employment on Employment Growth on Industrial Location Industrial Lands by Period Lands by Period 2018-2023 2023-2028 2018-2023 2023-2028 Northwest Industrial District 45% 35% 5,045 7,550 South/Southeast Industrial District 40% 35% 4,485 7,550 Northeast Industrial District 5% 5% 560 1,080 Edmonton Energy & Technology Park 10% 25% 1,120 5,390 Total 100% 100% 11,210 21,570 Source: Watson & Associates Economists Ltd., 2018.

8.3.3 Forecast Employment Density on Industrial Lands

Within Edmonton, employment density varies widely by sector. Major office, research and development and manufacturing tend to have higher employment densities. In contrast, wholesale trade, warehousing, logistics/distribution, transportation, utilities and communications generally have lower employment densities on average.

Building on recent historical trends, it is anticipated that future industrial absorption in Edmonton will be comprised of a broad range of industrial uses, including logistics/ distribution, warehousing, manufacturing and construction. The City is also expected to accommodate a growing share of medium and heavy industrial uses (accommodated within the EETP) which typically have relatively low employment densities. These industrial uses are expected to place downward pressure on employment densities over the longer term.

The City’s knowledge-based sectors will continue to expand, accommodated largely through office development and multi-tenant commercial development. Most of these sectors have relatively high employment densities which should generate relatively high average employment densities on industrial lands in relation to the existing City-wide average. Further, continued upward pressure on industrial land values, driven by the continued long-term strength of the local and regional economies, will also encourage increased land utilization and corresponding higher employment densities relative to what has been experienced in the past.

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Based on a review of recent development trends and the forecast land-use mix accommodated on industrial lands, an overall average density of 37 jobs per net ha (15 jobs per net acre) is forecast over the 2018 to 2028 period for industrial lands within the City of Edmonton. Employment density on industrial lands is expected to vary significantly by geographic area. Employment densities are anticipated to be highest in the South/Southeast and Northwest Districts with an average of 49 jobs per net ha (20 jobs per net acre) and 42 jobs per net ha (17 jobs per net acre) over the forecast period, respectively. Industrial land employment density is anticipated to be moderately lower within the Northeast District and the EETP. Within the Northeast District and the EETP, employment densities are expected to average 28 jobs per net ha (11 jobs per net acre) and 25 jobs per net ha (10 jobs per net acre), respectively. Average employment densities on industrial lands are expected to decline in Edmonton over the forecast period as the EETP, which is characterized by relatively low employment densities, captures a growing share of the City’s industrial land absorption.

The forecast density identified herein has been used in generating future demand on industrial lands over the forecast period. It should be noted that the recommended average density on industrial lands has been informed by recent and anticipated market trends and it is foreseeable that future density levels achieved on industrial lands could differ, depending on the regional and local industrial market conditions. Accordingly, it is recommended that the City monitor future density trends on industrial lands on a five- year basis.

Accommodation of Employment Growth Through Intensification

It is recognized that a portion of forecast employment on industrial lands growth will be accommodated through intensification. Over the 2018 to 2028 period, an estimated 20% of employment growth on industrial lands within the established industrial districts (i.e. Northwest, South/Southeast and Northeast Districts) is expected to be accommodated through intensification, comparable to recent trends observed in other major centres throughout Canada. Moderate infill and expansion of existing developed sites within developed industrial areas has been occurring to-date and is expected to continue as Edmonton matures and industrial land prices remain high. Further, some employment growth is expected to be accommodated through the uptake of vacant industrial space as Edmonton’s industrial vacancy rate is expected to decline over the forecast period from current peak levels.

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8.3.4 Industrial Land Demand by Industrial District, 2018-2028

Figure 71 summarizes forecast demand for industrial land within Edmonton’s Industrial Districts from 2018 to 2028 in accordance with the assumptions made above. Figure 72 illustrates the total forecast industrial land demand within the context of historical trends. Key observations include:

 The City of Edmonton is forecast to absorb an annual average of 74 net ha per year (184 net acres per year) from 2018 to 2028 – slightly lower than industrial absorption levels recorded over the 2011 to 2017 period. This reflects an average annual absorption of 24 net ha (59 net acres) within the Northwest District, 20 net ha (49 net acres) within the South/Southeast District, 5 net ha (12 net acres) within the Northeast District and 26 net ha (64 net acres) in the EETP;  Over the 2018 to 2023 period, average industrial land absorption is expected to average 44 net ha (108 net acres) annually, significantly lower than the historical average. This decline in average annual industrial absorption is attributed to the current slowdown in the energy sector which is expected to continue to negatively impact industrial employment growth over the short term and corresponding industrial land demand. Industrial land absorption levels are expected to rebound post-2021 with the gradual recovery of the energy sector and expanded market choice for industrial uses provided through the EETP;  Over the forecast period, industrial land demand is forecast to total 744 net ha (1,838 net acres). Of this total, 243 net ha (600 net acres) is anticipated to be accommodated in the Northwest District (33% of City-wide total), 197 net ha (487 net acres) in the South/Southeast District (26%), 257 net ha (635 net acres) in the EETP (35%) and 48 net ha (118 net acres) in the Northeast District (6%);  Annual industrial land absorption in the South/Southeast and Northwest Districts is forecast to be lower than in the past decade, driven in part by the current economic slowdown and increasing competition from neighbouring municipalities.  The Northeast District is expected to see a significant slowdown in industrial absorption with diminished supply opportunities within the Aurum Industrial Park and the negative impact of the downturn in the energy sector on energy-related industrial uses which drive a significant share of industrial land demand in the District;

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 The EETP is anticipated to capture an increasing share of the City’s industrial land absorption. While the EETP’s share of industrial lands development activity over the 2018 to 2023 period is expected to be relatively modest, over the 2023 to 2028 period, the EETP is forecast to capture 43% of City-wide land industrial land demand;  Forecast industrial land absorption for the EETP is estimated to total 257 net ha (635 net acres) over the 2018 to 2028 period; and  The forecast city-wide average annual industrial land absorption of 74 net ha per year (184 net acres per year) over the 2018-2028 period is notably lower than the absorption forecast of 112 net ha per year (277 net acres per year) identified in the 2015 Investment Competitiveness study for the 2016-2026 period.

Figure 71 City of Edmonton Major Employment Areas – Industrial Land Demand Forecast, 2018 to 2028

Total Employment on Annual Employment Total Employment Industrial Lands Employment Industrial Accommodated Industrial Growth Period Growth on Associated with New Density (Jobs Land through Land Demand Industrial Development Adjusted per Net ha) Absorption Intensification1 (ha) Lands for Intensification (ha)

Northwest Industrial District 2018-2023 5,045 1,010 4,035 42 97 19 2018-2028 12,595 2,520 10,075 42 243 24 South/Southeast Industrial District 2018-2023 4,485 895 3,590 49 73 15 2018-2028 12,035 2,405 9,630 49 197 20 Northeast Industrial District 2018-2023 560 110 450 28 16 3 2018-2028 1,640 330 1,310 28 48 5 Edmonton Energy & Technology Park 2018-2023 1,120 0 1,120 33 34 7 2018-2028 6,510 0 6,510 25 257 26 City of Edmonton Total 2018-2023 11,210 2,015 9,195 42 221 44 2018-2028 32,780 5,255 27,525 37 744 74 Source: Watson & Associates Economists Ltd., 2018. 1 Assumes that 20% of the employment accommodated through intensification within established Industrial Districts.

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Figure 72 City of Edmonton Average Annual Industrial Land Demand – Historical and Forecast

120 105 100 Forecast Average 79 74 Hectacres 80

60 44 40

0 2011-2018 2018-2023 2023-2028 Period

Average Annual Lands Absorped Hectares) Absorped (Net Lands Annual Average Historical Forecast Existing District Forecast E.E.T.P. Forecast Average

Source: Adapted from the City of Edmonton buidling permit activity by Watson & Associates Economists Ltd., 2018. Note: 2018 includes activity from January to July.

8.3.5 Industrial Land Needs within the City of Edmonton, 2018 to 2028

Figure 73 summarizes forecast industrial land needs for the City of Edmonton over the 1 2018 to 2028 period. In accordance with the existing supply of developable vacant industrial lands versus long-term demand, the City of Edmonton has a sufficient supply of industrial lands to meet industrial land needs through 2028.

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Figure 73 City of Edmonton Forecast Industrial Land Needs, 2018 to 2028

Edmonton Energy and Northwest Industrial District South/Southeast Industrial District Northeast Industrial District Technology Park 2018-2023 2018-2028 2018-2023 2018-2028 2018-2023 2018-2028 2018-2023 2018-2028

Net Industrial Land Demand (ha) 97 243 73 197 16 48 34 257

Net Industrial Land Supply ha 563 563 397 397 114 114 2,830 2,830 (Reflecting vacancy adjustment)

Net Industrial Land (ha) 466 320 324 201 98 67 2,796 2,572 Surplus/(Shortfall) 8.4 Forecast Industrial Land Demand by Sector/Land Use

Building on the analysis presented in section 8.2, Figure 74 summarizes the aggregated forecast industrial land-use breakdown for each of the City’s industrial districts by industrial land-use over the forecast period.

8.4.1 South/Southeast Industrial District

As shown, 70% of the absorbed lands are anticipated to be utilized for industrial uses with a mix of light and medium industrial lands. This includes a significant share of distribution/logistics/wholesale trade, transportation, multi-tenant industrial and flex space. The area is also anticipated to accommodate a moderate share of manufacturing and construction-related uses. A large share of the general industrial development will be accommodated within the Southeast District while the distribution/logistics uses will be concentrated in the South.

The South/Southeast District is anticipated to accommodate a notable share of office and other commercial development, comprising approximately 30% of the lands absorbed. This includes office, multi-tenant commercial, research and development, stand alone retail and other commercial (e.g. hotels, restaurants, ancillary retail). Office and multi-tenant commercial will be accommodated largely on prestige industrial lands.

8.4.2 Northwest Industrial District

The Northwest District will continue to accommodate a broad range of light/medium and business park industrial uses, accounting for 80% of industrial land absorption. Much of this development will be in distribution/logistics and large-scale, multi-tenant industrial

Watson & Associates Economists Ltd. PAGE 130 Edmonton 2018 Investment Competitiveness Study condominiums. The industrial land-use base in this District is anticipated to gradually diversify with construction, manufacturing and transportation uses, concentrated in the Winterburn area. Office/commercial land uses are anticipated to account for 20% of industrial lands absorbed and will be comprised largely of low-rise office, multi-tenant commercial and retail/service commercial uses.

8.4.3 Northeast Industrial District

Land absorption in the Northeast District will continue to be dominated by medium industrial development, largely associated with the energy sector with continued growth in manufacturing, modular yards, transportation and construction. The area will also be expected to see a moderate share of commercial development on industrial lands as well as some heavy industrial development.

8.4.4 Edmonton Energy and Technology Park

As illustrated in Figure 74, over the next 10 years, 65% of forecast industrial land absorption within the EETP is anticipated to be accommodated through a broad range of light/medium industrial development comprised of multi-tenant industrial manufacturing, distribution/logistics, construction and warehousing. Approximately 30% of the industrial lands absorbed are expected to be used for heavy industrial (petrochemical) uses. The EETP is also expected to see approximately 5% of the absorbed lands utilized for commercial uses, largely employment-supportive and other commercial retail/services.

Watson & Associates Economists Ltd. PAGE 131 Edmonton 2018 Investment Competitiveness Study

Figure 74 City of Edmonton Industrial Land Absorption by Land Use, 2018 to 2028

100% 5% 5% 90% 20% 30% 80% 70% 65% 60% 75% 50% 40% 80% 70% 30% 20% 30% % Share of Land Absorption of Land Share % 10% 20% 0% Northwest South/Southeast Northeast EETP Heavy Industrial Light/Medium Office/Other Commercial

Source: Watson & Associates Economists Ltd., 2018. 8.5 Regional Market Capture

The following provides an assessment of Edmonton’s potential regional market capture of industrial lands absorption based on the industrial land demand forecast presented in section 8.2.

8.5.1 Northwest Industrial District

Over the past five years, the Northwest Industrial District has captured a 44% share of total urban industrial land absorption in relation to the broader Northwest Edmonton Metropolitan Region industrial market, as illustrated in Figure 75. As shovel-ready land opportunities continue to be somewhat limited in the Northwest and with development costs relatively high, the Northwest District’s share of the Northwest Edmonton Metropolitan Region industrial market is expected to diminish marginally. Over the forecast period (2018 to 2028), the Northwest District’s share of the Northwest Edmonton Metropolitan Region industrial market is expected to decrease from 44% to 33%%. The Acheson Industrial Park will continue to be highly attractive for land- expansive uses including distribution/logistics, warehousing, construction and

Watson & Associates Economists Ltd. PAGE 132 Edmonton 2018 Investment Competitiveness Study manufacturing due to its competitive land prices, transportation connections and land supply opportunities. Acheson’s share of the Northwest market is expected to increase from 51% to 54%. Further, with growing opportunities for industrial development, St. Albert is expected to become a more prominent player in the industrial market, with a growing share of development activity in the Northwest part of the Edmonton Metropolitan Region. This will include industrial sectors geared towards distribution/logistics, warehousing, construction, manufacturing, as well as more prestige uses accommodated in standalone office and multi-tenant commercial buildings.

Figure 75 Northwest Industrial District Historical and Forecast Share of Light/Medium Industrial Lands Absorbed Within the Northwest Edmonton Metropolitan Region

100% 5% 13% 90% 80% 70% 51% 60% 54% 50% 40% 30% 20% 44% 33% 10% Share of Total Lands Absorbed Lands Total of Share 0% 2011-2018 2018-2028 Northwest Industrial District Acheson (Parkland County) St. Albert

Source: Watson & Associates Economists Ltd., 2018.

8.5.2 South/Southeast Industrial District

Over the past five years, the South/Southeast District has captured approximately 40% of the South/Southeast Edmonton Metropolitan Region’s industrial land market in terms of industrial land absorption, as illustrated in Figure 76. Over the next decade, as the supply of vacant industrial lands continues to diminish, the District’s share of the South/Southeast Edmonton Metropolitan Region’s industrial land market is anticipated to decline to 33%. A large share of the loss in market share is expected to be taken by Leduc County and the City of Leduc which are forecast to have their collective share of

Watson & Associates Economists Ltd. PAGE 133 Edmonton 2018 Investment Competitiveness Study the market increase from 31% to 46%. Recent and planned industrial/business parks along the Highway 2 corridor in proximity to the EIA are considered highly marketable for a broad range of light and prestige employment uses. These industrial areas are expected to compete directly with the South/Southeast District.

Figure 76 South/Southeast Industrial District Historical and Forecast Share of Light/Medium Industrial Lands Absorbed Within the Southeast Edmonton Metropolitan Region

100% 90% 20% 29% 80% 70% 29% 60% 17% 50% 14% 40% 17% 30% 20% 40% 33% 10% 0% Share of Total Lands Absorbed Lands Total of Share 2011-2018 2018-2028

South/Southeast Industrial District City of Leduc Leduc County Strathcona County (Urban) Source: Watson & Associates Economists Ltd., 2018.

8.5.3 Northeast Industrial Area (Light/Medium Industrial)

Historically, the market for urban light/medium industrial development in the northeast part of the Edmonton Metropolitan Region has historically been relatively limited compared to the Northwest and South/Southeast. This has been largely attributed to limited land supply opportunities; however, over the past five years, industrial land absorption in the Northeast has accelerated with the development of the Aurum Industrial Park within the City of Edmonton and strong development activity within the Sturgeon Industrial Park in Sturgeon County. It is anticipated that with the development of the EETP opportunities for light/medium industrial development, market growth in the Northeast Capital Area will increase. Over the 2018 to 2028 period, the EETP is expected to capture 57% of the Northeast Edmonton Metropolitan Region light/medium industrial land market, totalling approximately 257 net ha (635 net acres), as presented in Figure 77. Over the period, the market share of light/medium industrial land

Watson & Associates Economists Ltd. PAGE 134 Edmonton 2018 Investment Competitiveness Study absorption within the existing Northeast District will diminish significantly as a result of reduced land supply opportunities.

Figure 77 Northeast Industrial District Historical and Forecast Share of Light/Medium Industrial Lands Absorbed Within the Northeast Edmonton Metropolitan Region

100% 90% 21% 19% 80% 19% 70% 21% 60% 50% 40% 53% 30% 58% 20% 10% 10% 0% Share of Total Lands Absorbed Lands Total of Share 2011-2018 2018-2028

Northeast Industrial District EETP Sturgeon County Fort Saskatchewan

Source: Watson & Associates Economists Ltd., 2018.

8.5.4 Observations

Edmonton is forecast to experience moderate employment growth over the next decade (2018 to 2028), with growth rates moderately lower than what the City has achieved over the past decade. This is attributed to the current economic slowdown in the energy sector which is expected to persist for the short term and negatively impact employment growth, largely in the industrial sector. Industrial land absorption levels over the next five years are forecast to be moderately lower than in the past decade as a result of the current economic slowdown. Growing market competition from neighbouring municipalities is also expected to limit land absorption levels in the Northwest and South/Southeast Districts

Over the second half of the forecast period (2023 to 2028), the macro-economic conditions in the energy sector are expected to rebound, which should generate moderate to steady employment growth on industrial lands related to the energy sector. As the supply of shovel-ready lands expands in the EETP, a broad range of industrial

Watson & Associates Economists Ltd. PAGE 135 Edmonton 2018 Investment Competitiveness Study development opportunities will emerge which will also be a significant catalyst for employment growth in the City post-2023.

Watson & Associates Economists Ltd. PAGE 136 Edmonton 2018 Investment Competitiveness Study

Figure 78 Edmonton Metropolitan Region Share of Regional Light/Medium Industrial Land Absorption

100% 90% 80% 70% 55% 59% 60% 50% 40% 30% 20% 45% 41% 10% 0% Share of Total Lands Absorbed Lands Total of Share 2011-2018 2018-2028

City of Edmonton Rest of Region

Source: Watson & Associates Economists Ltd., 2018.

Watson & Associates Economists Ltd. PAGE 137 Edmonton 2018 Investment Competitiveness Study

Appendix A Detailed Cost of Development Tables

TABLE A-1: ASSESSMENT OF TOTAL DEVELOPMENT COST/ANNUALIZED COST

Manufacturing Industrial Building - 200,000 sq.ft. Building 200,000 square feet Land 15.30 Acres (30% FSI)

DEVELOPMENT COSTS

Land Cost per Land Cost per Construction Off-Site Fees Building Permit Developer Profit Total Development Cost per Market Area Sq.ft. of Total Development Cost Acre1 Cost per Sq.ft.2 per Sq.ft.3 Fees per Sq.ft. (5%) per Sq.ft. Sq.ft. Building GFA

AB C D E F H A x 15.3 / 200000 5% of (B+C+D+E) (B+C+D+E+F)-G Edmonton - Northwest $700,000 $53.55 $109.60 $6.08 $1.03 $8.51 $178.77 $35,753,165 Edmonton - South/Southeast $750,000 $57.38 $109.60 $6.57 $1.03 $8.73 $183.31 $36,661,119 Edmonton - EETP $650,000 $49.73 $109.60 $7.83 $1.03 $8.41 $176.59 $35,317,355 Leduc County $500,000 $38.25 $109.60 $3.20 $0.18 $7.56 $158.79 $31,757,680 Parkland County (Acheson) $450,000 $34.43 $109.60 $2.98 $0.78 $7.39 $155.17 $31,033,060 Strathcona County (Sherwood Park) $600,000 $45.90 $109.60 $4.44 $0.93 $8.04 $168.91 $33,782,842 St. Albert $650,000 $49.73 $109.60 $7.79 $1.04 $8.41 $176.56 $35,312,980 Sturgeon County $107,000 $8.19 $109.60 $3.10 $0.83 $6.09 $127.80 $25,559,236

Annualized Total Annual Tax Rate Water/ Development Assessment per Taxes Electricity Natural Gas Operating Market Area Wastewater Total Annualized Cost per Sq.ft. Cost per Sq.ft.4 per Sq.ft. Costs per Sq.ft.5 Costs per Sq.ft.5 Costs per Costs per Sq.ft.5 Sq.ft. Sq.ft.

IJ K L M N OP Q H x 6.5% J x K / 100 L+M+N+O I + P Edmonton - Northwest $11.62 2.1219 $144.62 $3.07 $0.52 $3.50 $0.61 $7.71 $19.33 Edmonton - South/Southeast $11.91 2.1219 $144.62 $3.07 $0.52 $3.50 $0.61 $7.71 $19.62 Edmonton - EETP $11.48 2.1219 $146.91 $3.12 $0.52 $3.50 $0.61 $7.76 $19.24 Leduc County $10.32 1.0650 $118.34 $1.26 $0.95 $3.50 $0.61 $6.33 $16.65 Parkland County (Acheson) $10.09 1.1707 $166.87 $1.95 $0.72 $3.50 $0.61 $6.79 $16.88 Strathcona County (Sherwood Park) $10.98 1.2775 $171.08 $2.19 $0.69 $3.50 $0.61 $6.99 $17.97 St. Albert $11.48 1.4500 $109.59 $1.59 $0.58 $3.50 $0.61 $6.28 $17.76 Sturgeon County $8.31 1.3931 $149.64 $2.08 $0.86 $3.50 $0.61 $7.06 $15.37

Source: Watson & Associates Economists Ltd. Notes: ¹ Land prices based on serviced land. Data obtained from Avison Young Industrial Market Reports and other brokerage real estate reports. ² Construction costs derived from RSMeans Square Foot Costs, Location Factors data by Watson & Associates Economists Ltd. Locational variation based on RSMeans Construction cost data. ³ Off-site levies based on posted 2018 rates by municipalities. City of Edmonton off-site levies were obtained from the City of Edmonton, Current Planning Branch, November 2018. Off-site levy rates for Leduc County are based on Crossroads Area; off-site levy rates for Sturgeon County based on the average of Sturgeon Industrial Area; Parkland County off-site levy rates based on the average of the Acheson area; City of Edmonton off-site levy rates are based on the average for the district. ⁴ Assessment per sq.ft. is based on samples of 2017/2018 taxed properties. ⁵ Costs for water/wastewater, natural gas and electricity are based on assumptions of consumption usage.

H:\Edmonton\2018 Competitiveness Study\ Watson & Associates Economists Ltd. 11/20/2018 Edmonton Annualized Cost of Development Model TABLE A-2: ASSESSMENT OF TOTAL DEVELOPMENT COST/ANNUALIZED COST

Distribution/Logistics Centre Building - 300,000 sq.ft. Building 300,000 square feet Land 17.22 Acres (35% FSI)

DEVELOPMENT COSTS

AB C D E F H A x 17.2 / 300000 5% of (B+C+D+E) (B+C+D+E+F)-G Edmonton - Northwest $700,000 $40.17 $79.46 $4.56 $0.75 $6.25 $131.18 $39,354,049 Edmonton - South/Southeast $750,000 $43.04 $79.46 $4.93 $0.75 $6.41 $134.59 $40,375,767 Edmonton - EETP $650,000 $37.30 $79.46 $5.87 $0.75 $6.17 $129.54 $38,863,493 Leduc County $500,000 $28.70 $79.46 $2.40 $0.48 $5.55 $116.59 $34,975,737 Parkland County (Acheson) $450,000 $25.83 $79.46 $2.23 $0.56 $5.40 $113.48 $34,044,482 Strathcona County (Sherwood Park) $600,000 $34.44 $79.46 $3.33 $0.68 $5.89 $123.79 $37,137,762 St. Albert $650,000 $37.30 $79.46 $5.84 $0.76 $6.17 $129.53 $38,858,547 Sturgeon County $107,000 $6.14 $79.46 $2.32 $0.60 $4.43 $92.95 $27,884,282

IJ K L M N OP Q H x 6.5% J x K / 100 L+M+N+O I + P Edmonton - Northwest $8.53 2.1219 $127.27 $2.70 $0.20 $0.67 $0.05 $3.63 $12.15 Edmonton - South/Southeast $8.75 2.1219 $127.27 $2.70 $0.20 $0.67 $0.05 $3.63 $12.37 Edmonton - EETP $8.42 2.1219 $138.10 $2.93 $0.20 $0.67 $0.05 $3.86 $12.28 Leduc County $7.58 1.0650 $137.71 $1.47 $0.29 $0.67 $0.05 $2.47 $10.05 Parkland County (Acheson) $7.38 1.1707 $201.98 $2.36 $0.22 $0.67 $0.05 $3.30 $10.68 Strathcona County (Sherwood Park) $8.05 1.2775 $147.80 $1.89 $0.21 $0.67 $0.05 $2.82 $10.86 St. Albert $8.42 1.4500 $132.47 $1.92 $0.17 $0.67 $0.05 $2.81 $11.23 Sturgeon County $6.04 1.3931 $130.16 $1.81 $0.26 $0.67 $0.05 $2.79 $8.83

H:\Edmonton\2018 Competitiveness Study\ Watson & Associates Economists Ltd. 11/20/2018 Edmonton Annualized Cost of Development Model TABLE A-3: ASSESSMENT OF TOTAL DEVELOPMENT COST/ANNUALIZED COST

Multi Tenant Commercial Building - 50,000 sq.ft. Building 50,000 square feet Land 3.28 Acres (40% FSI)

DEVELOPMENT COSTS

AB C D E F H A x 3.28 / 50000 5% of (B+C+D+E) (B+C+D+E+F)-G Edmonton - Northwest $700,000 $45.91 $219.42 $5.21 $2.07 $13.63 $286.24 $14,312,095 Edmonton - South/Southeast $750,000 $49.19 $219.42 $5.64 $2.07 $13.82 $290.13 $14,506,708 Edmonton - EETP $650,000 $42.63 $219.42 $6.71 $2.07 $13.54 $284.37 $14,218,656 Leduc County $500,000 $32.80 $219.42 $2.74 $1.34 $12.81 $269.11 $13,455,528 Parkland County (Acheson) $450,000 $29.52 $219.42 $2.55 $1.58 $12.65 $265.71 $13,285,748 Strathcona County (Sherwood Park) $600,000 $39.35 $219.42 $3.81 $1.87 $13.22 $277.67 $13,883,373 St. Albert $650,000 $42.63 $219.42 $6.68 $2.09 $13.54 $284.36 $14,218,063 Sturgeon County $107,000 $7.02 $219.42 $2.66 $1.67 $11.54 $242.30 $12,114,903

IJ K L M N OP Q H x 6.5% J x K / 100 L+M+N+O I + P Edmonton - Northwest $18.61 2.1219 $182.85 $3.88 $0.37 $1.52 $0.14 $5.91 $24.52 Edmonton - South/Southeast $18.86 2.1219 $182.85 $3.88 $0.37 $1.52 $0.14 $5.91 $24.77 Edmonton - EETP $18.48 2.1219 $178.32 $3.78 $0.37 $1.52 $0.14 $5.81 $24.30 Leduc County $17.49 1.0650 $135.09 $1.44 $0.29 $1.52 $0.14 $3.39 $20.88 Parkland County (Acheson) $17.27 1.1707 $166.45 $1.95 $0.23 $1.52 $0.14 $3.83 $21.11 Strathcona County (Sherwood Park) $18.05 1.2775 $138.10 $1.76 $0.21 $1.52 $0.14 $3.63 $21.68 St. Albert $18.48 1.4500 $155.45 $2.25 $0.17 $1.52 $0.14 $4.08 $22.57 Sturgeon County $15.75 1.3931 $155.47 $2.17 $0.26 $1.52 $0.14 $4.08 $19.83

H:\Edmonton\2018 Competitiveness Study\ Watson & Associates Economists Ltd. 11/20/2018 Edmonton Annualized Cost of Development Model