The spring of 2018 saw Calgary office vacancies ease marginally in the downtown and beltline markets, while nudging upwards in other suburban nodes. Analysts from Colliers International draw a connection in those two trajectories, pointing to three large former suburban tenancies that relocated downtown during the quarter.
Nearly 114,000 square feet of positive absorption in the downtown market shaved 26 basis points from the availability rate, taking it down to 26.8 per cent. Most of this improvement was in Class A space, but it made no impact on the average asking rent which held steady at $14 per square foot.
More than 11.7 million square feet of office space remains available downtown. Nearly 32 million square space of occupied space actually surpasses the tally during the 2009 downturn, when occupancy bottomed out at 31.1 million square feet. However, about nine million square feet of space has been added downtown in the intervening years. Although the current total office inventory of 43.8 million square feet is unchanged from the first quarter, the 430,000-square-foot TELUS Sky Tower is nearing completion and expected to add 285,000 of vacant Class AA headlease space to the market by early 2019.
Demand for large blocks is muted. “Most landlords are now implementing regular ‘model suite’ programs to keep up with demand for ‘move in ready’ space in the smaller size ranges, 2,500 – 5,000 square feet,” Colliers reports.
The beltline offers a smaller range of choices within its office inventory of 7.2 million square feet. There, the vacancy rate hovers just below 22 per cent.
Colliers analysts point to two interesting trends. One — closing of a 66,325-square-foot office building to be converted to residential uses — underpins the slight 8-basis-point decrease in the beltline vacancy rate since March 2018. The other might hint at a slowly transitioning economy as a cannabis-related business, Sundial Growers, leased 13,000 square feet in one of the larger deals of the quarter.
Four other office submarkets in Calgary’s northwest, northeast, southwest and southeast quadrants contribute another 13.6 million square feet of office space. Of these, the northwest node boasts the lowest vacancy rate of the city, at 15.2 per cent.
Economic forecasters continue to watch oil and gas prices closely, but still see little to trigger an employment boom and surging demand for office space. Rather, Colliers analysts note that tenants in a position to take advantage of current market dynamics can fare very well.
“As is the case in most downturns, tenants are looking to capitalize on market conditions by transitioning into higher quality office space,” they state. “The migration to quality continues for most downtown tenants and much to the detriment of B and C class landlords, specifically with buildings located outside the centre core of downtown.”