Colliers International reports that Calgary’s downtown office market steadily fuels the city’s economic growth. The first quarter of 2012 marks Calgary’s tenth straight quarter of positive absorption, as 866,351 square feet were absorbed. The overall vacancy rate dropped from 4.49 per cent in the previous quarter to just 4.2 per cent. AA and A class markets remain very tight, with the AA vacancy rate at just 0.59 per cent. This represents the lowest AA vacancy rate since 2006. B and C class markets also continue to be active, with landlords continuing to increase rental rates. Therefore, some tenants explore beltline and suburban options for better availability and lower costs. Because demand is high, at least five new office developments are being proposed for completion between 2014 and 2017.
Calgary by FaceMePLS
Challenges in the Oil Industry
However, a number of macroeconomic factors are threatening the positive outlook for the Calgary downtown real estate market. With gas prices languishing, dry gas weighted companies continue to face serious challenges. This decrease has made it difficult to fund drilling to replace depleting reserves. Furthermore, limited export capacity prevents Western Canadian-based energy companies from reaching lucrative markets. As a result, limited pipeline capacity has significantly discounted Canadian crude oil prices relative to U.S. benchmark oil prices. The negative consequences of the current economic health give Canadian oil companies no other choice except that they’ll extend their reach towards Asian markets. With approximately 75 per cent of downtown tenants directly involved in the energy industry, the downtown leasing market remains exposed to downturns in the energy sector.
New Space Available for Lease
Calgary Skyline by Lambert Rellosa
Over the first quarter of 2012, Encana and Cenovus’ new headquarters was completed. At 58 stories, the Bow is now the tallest building in Western Canada and will add 1,940,000 square feet to the downtown office inventory through 2012. Encana and Cenovus’ pending move into the Bow played a significant role in this quarter’s positive absorption figure. There is speculation that a portion of Encana’s backfill space may become available for sublease during 2012. Even a portion of Encana Place, if not all of this building, might be expected to become available for lease at some point in 2012. With the recently announced construction of Eighth Avenue Place West Tower, occupancy is also scheduled for Q3 2014. Occupancy of Calgary City Centre is scheduled for Q1 2016. What’s more, additional downtown developments are expected to be announced throughout 2012.
Calgary continues to lie at the centre of strong economic and employment growth. Alberta’s population growth rate jumped to 2.03 per cent in 2011, making it the fastest growing province in Canada. At 5.8 per cent, Calgary had the second lowest unemployment rate in Canada in 2011. 1,671 companies in the oil, gas, and mining extraction industry currently employ approximately 55,800 workers in Calgary, with many more working in related industries. With sustained growth in both population and employment figures, downtown Calgary office vacancy is anticipated to remain low for the foreseeable future, though the impact of low gas prices may have a negative impact on the economy.