It seemed like a good idea three years ago when oil prices were cresting $140 per barrel and pipelines appeared ready to link Asia with Alberta crude: build a record number of office towers to cash in on Calgary’s oil-fired bash.
The party ended hard, however. Alberta’s biggest city has nearly a quarter of its downtown office space – 10 million square feet – empty, with more surplus space being shoved back onto the market every month
There is also more than 1.5 million square feet of office space under construction downtown that will be completed over the next 18 months.
Some point to a slow rise in oil prices and other economic signals to suggest this could be the bottom. After plunging to US$30.32 per barrel in February 2016, oil prices had recovered to around US$53 a barrel in April.
But analysts are hedging their bets.
“There are no forecasts that suggest a quick return to the high-growth environment Calgary has been known for,” concluded a sobering first quarter office market report from Avison Young.
Avison Young pegs the downtown office vacancy rate at 23.9% with an overall Calgary vacancy rate of 22.5%, both by far the highest of any major Canadian city.
Cushman & Wakefield believes Calgary’s total office vacancy has already hit 30%. As a comparison, Vancouver’s downtown office vacancy rate is 7.6%
More than four million square feet of sublease space is available downtown, and it is expanding at an average of 90,000 square feet a month. Recently,
Repsol Oil & Gas Inc. gave up three floors of surplus space in the Bankers Hall West tower.
Anthony Scott, director of research at Barclay Street Real Estate, noted there are glimmers of recovery but at “the smallest end of available options.” This refers to start-up companies leasing small downtown offices of 2,000 square feet or less.
This pales, however, beside both the increase in sublease space and the upcoming new office towers. Add it all up and the downtown vacancy rate this year will be around 26.6%, according to Barclay Street research.
An additional 501,000 square feet will come to the market over the next few months. A further one million square feet is expected to flood into the downtown over the next 18 months, including unclaimed space in the new Brookfield Place and the Telus Sky tower. Brookfield has about 80% of its 1.4 million square feet pre-leased, while Telus Sky is still looking to fill 60% of its 460,000 square feet by the time it opens late in 2018.