The core office markets in Canada’s two largest western cities represent the most startling contrast in the country.
There is four million square feet of new office space under construction in downtown Vancouver – the most in the city’s history – but it still does not keep pace with what is also historic demand.
At 2.3%, Vancouver has among the lowest downtown office vacancy rates in North America, according to a recent CBRE report. Prime office space downtown is leasing for more than $55 per square foot gross, the highest in Canada.
In Calgary, a downtown office-building boom peaked and collided with crashing oil prices six years ago. The result is Canada’s highest vacancy rate, at 24.6%, nearly a third of it in massive spaces.
Calgary’s empty office space downtown covers 11.4 million square feet, equal to a ranch-sized 241 acres, with 72% of that in head leases and the remaining 3.2 million square feet in sublease space that has been shoved back onto the market.
“Almost half the sublease space currently on the market is set to expire in the next five years,” according to a recent survey by Avison Young, Calgary.
Noting that the downtown office absorption went negative in 2019’s third quarter, Avison Young has calculated that if the current absorption rate continues, Calgary’s central vacancy rate would still be in the 20% range four years from now.
Avison Young counted 13 office offerings in downtown Calgary at the end of 2019 with more than 100,000 square feet as one contiguous block. These blocks of dark space represent 28% of the total offices vacant downtown.
Among these giants is the 80,758-square-foot fourth floor of the 20-storey Gulf Canada Square tower on 9th Avenue Southwest, a Class A building.
At 697 square feet in length, the empty space covers two city blocks downtown.
GWL Realty Advisors (GWLRA) manages Gulf Canada Square. A major oil-and-gas tenant had held the fourth floor, and it came back to GWL through a lease renegotiation last year.
“The space has not leased, but we have had a few interested parties since our broker open house in November,” said Lucas Beck, senior manager, leasing, for GWL, on January 8. “Given the massive floor plate, we have four e-scooters on the floor to make it easier to get around on a tour.”
Beck said the lease rate is dependent on the term, but “it would be market rate for Class A space and enough TI [tenant improvement] to build out the space to a reasonable spec.”
The current Class A lease rate in downtown Calgary is around $23 per square foot, according to Avison Young.
In Vancouver, three of the first four office towers being built are already 100% pre-leased and, in 2019’s third quarter, more than 325,000 square feet of existing space had been taken up, despite escalating lease rates.
The demand for downtown offices mirrors the diversity of the B.C. economy. The big space-takers now are not resource-based firms. In 2019, 51.5% of the pre-leasing activity was from the technology industry, co-working firms took 20.9% and business services claimed 13.1% of the new space, according to industry surveys.
“Vancouver’s low-availability environment for both office and industrial is expected to continue for the foreseeable future,” said CBRE Vancouver managing director Jason Kiselbach. “Demand for downtown office space remains strong, despite rising rental rates, and the suburban office market is gaining ground with more than 1.4 million square feet under construction and leased rates poised for appreciation.” •