The Epcor Effect.

That's what they're calling it in Edmonton's commercial real-estate world.

The Epcor Effect doesn't have anything to do with light switches or flushing toilets. It refers to the expected impact of the opening of the new Epcor office tower at 101st Street and 104th Avenue.

It's been a long time since Edmonton saw a new highrise office building downtown. The last one to open was Commerce Place in 1990.

A new office tower is, on balance, a fabulous thing for the downtown. But its consequences are complicated. The Epcor Tower is big -it will have almost 600,000 square feet of office space. Epcor and Capital Power will be the anchor tenants, taking up approximately 290,000 square feet, roughly half the space. The federal Department of Justice will also be moving its offices to the new tower, occupying another 130,000 square feet.

And what happens to the space left behind? Much of the city cheered when the Epcor Tower was announced. But what happens if the opening of a new building on the north edge of the downtown leaves a great gaping hole in the heart of the existing city core?

Sure, it's great to see a new tower rising hopefully on the long-vacant Station Lands. But what does that success mean for the buildings left behind -especially the tired old Epcor building on Jasper Avenue, soon to be empty?

"By the end of this year, we'll have one million square feet of vacant office space in the downtown financial district alone," says Cory Wosnack, a principal with Avison Young's office leasing division.

Epcor's move will, of course, completely empty out the company's existing 200,000-square-foot office tower. As well, says Wosnack, the move by the federal Justice Department will leave 70,000 square feet in the TD Tower vacant.

"When this all happens in one quarter, it's very dramatic," he says. "In a small-market city like Edmonton, that is a very significant challenge."

A big part of that challenge is that Edmonton is a government town. Almost half of our downtown office space -roughly 48 per cent -is occupied by federal, provincial and municipal tenants. We just don't have the kinds of huge oil-and-gas companies and engineering firms that fill Calgary's office towers. If we want to fill new office space in our downtown, we pretty much have to convince companies headquartered in the suburbs to move to the city centre or we wait for some level of government to expand. Otherwise, we're just moving tenants from one downtown building to another, doing little to increase the number of individuals working -and shopping and dining -downtown.

Avison Young's fourth-quarter office report for 2010, released last week, pegs our current downtown office vacancy rate at 7.7 per cent, a decrease of 0.2 per cent from the previous quarter. It may not sound like a lot, but it's the first time that Edmonton's overall office vacancy rate has dropped in the two years since the 2008 stock-market crash and global recession.

But even though vacancy rates are falling, Wosnack says downtown landlords are feverishly discounting lease rates, offering existing tenants fabulous deals and great improvement packages to lock them in. It all creates what Avison Young calls the Strike Zone -a perfect time for tenants to grab good deals or to trade up to a better location.

"The flight to quality is going to take place over the course of this year," Wosnack predicts. "There will be many companies that take advantage of the opportunity to improve their address."

Wosnack doesn't foresee that many smaller companies in suburban industrial parks will suddenly get inspired to move into Manulife Place or the TD Tower. Instead, his forecast is that organizations already downtown will upgrade to newer, spiffier or recently remodelled digs -putting market pressure on the owners and managers of older, more rundown buildings to improve their spaces, too. If some suburban companies decide that this is their chance to move to the heart of the city, all the better.

It's a nice image, this vision of the new Epcor Tower raising competitive standards and expectations throughout the downtown. But how realistic is it? It's one thing to lure new tenants from the burbs into a premium building like the TD Tower. But the old Epcor building is tired and ugly, a bleak, vaguely ominous presence on Jasper. Empty, it could be nothing but the worst kind of urban blight.

Still, Wosnack sees yet more reason for optimism. Four years ago, a division of General Electric, GE Real Estate, acquired the aging Epcor building, as well as the old Odeon Theatre and the old Bank of Montreal building immediately to the west. Wosnack says GE has been working with local architecture firm Dialog (the former Cohos Evamy) and local builder Ledcor on a major redevelopment plan for the block, a mix of office and retail space. Expect a major announcement, he says coyly, within the next three to four weeks.

"It's going to be an exciting refurbishment of the corner. It's going to turn troublesome news into good news," he says. "It's going to bring attention to a building that really needs a shot in the arm."

A brand-new development on Jasper Avenue? If -and it's still a big if -that came to pass, it could be the most delightful Epcor Effect of all.

psimons@edmontonjournal.com

Tw it ter.com / Paulatics

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