CALGARY – The hollowing out of Calgary’s core has hit its highest level in more than 30 years and the situation in what was once the energy industry’s thriving financial pulse is likely to worsen, a commercial real estate firm says.
In a report released Wednesday, CBRE Canada estimates the city’s downtown office vacancy rate was 20.2 per cent in the first quarter ended March 31, almost twice as high as the 11.8 per cent vacancy rate in the same period a year ago.
Greg Kwong, regional managing director at CBRE, said it’s the first time since 1983 that more than one fifth of office space was available in downtown Calgary, and the city is on track to hit a new record above the 22 per cent rate hit that year.
“It’s going to get a little bit worse before it gets better,” said Kwong. “Unless oil jumps back to $80 a barrel, I don’t think we’ll go down to the teens.”
Prices have dropped to an average of $20.97 per square foot for high-end class A office space from $29.23 in the same quarter a year ago, CBRE added.
Kwong said he has been surprised by how quickly Calgary’s market has reversed from the 2009-2014 trend, when it had the lowest vacancies and highest rental rates in Canada.
“It was amazing how robust the market was in November 2014, and literally within four or five months it was amazing how ugly it got here,” said Kwong.
Calgary’s office market has been hit hard as oil and gas companies continue to cut jobs and consolidate office space due to low crude prices.
Barclay Street Real Estate released a report Tuesday saying MEG Energy is trying to sublease more than 300,000 square feet, Shell Canada more than 183,000 square feet and Penn West Energy 73,000 square feet.
The city is now an outlier in Canada’s downtown office market, with Toronto’s vacancies up only slightly in the quarter to 5.3 per cent, while Vancouver’s dropped to 8.8 per cent and Montreal’s was down to 10.8 per cent, according to CBRE.
Vacancy rates also don’t account for the unknown amount of near-empty office space that companies haven’t tried to sublease because there’s no market for them, said Kwong.
“You’ll see some buildings where there are five people on a 40,000-square foot floor,” he said.
Dan Lannon, a senior vice-president at real estate company Colliers International, said with about three million square feet of office space under construction, the downtown core could have 11 million square feet of empty offices in 2018. That’s the equivalent of about 647 NHL rinks.
“The fact is we’re adding a lot of office space to our market that our city really doesn’t need,” said Lannon.
With Calgary absorbing an average of about 550,000 square feet of office space per year over the past 15 years, Lannon said it could be well over a decade before the city returns to a balanced market.
Not all commercial real estate in the city has been as affected though. Kwong said the industrial real estate market is still robust because it’s less tied to oil and gas.
Dan Harmsen, associate broker at Barclay Street, said retail space is also still seeing low vacancy rates and high demand. He said the city still has the highest average retail sales numbers in Canada, and retail space per capita is still well below the North American average.
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