Market analysts suggest milder decline in downtown Calgary is tantamount to an upturn in optimism. Colliers International’s newly released overview of the first quarter of 2017 reports a 25 per cent vacancy rate along with worries that recent energy sector mergers will spur more layoffs and consolidation of office space, but recounts some signs of renewed demand.
“Many tenants who have been sitting on the sidelines over the last year are of the view that, with improving fundamentals in the energy sector, now is a good time to take advantage of the very favourable market rates and inducement packages currently being offered by landlords,” the report hypothesizes.
Nearly 142,000 square feet of downtown office space was returned to the market in the first three months of 2017, but this is well off last year’s pace when 2.3 million square feet emptied out over the course of 12 months. Total vacant downtown office space now surpasses 10.6 million square feet with more than half of that in Class AA or Class A buildings.
“The majority of available space in the downtown core is comprised of larger blocks of space in excess of 20,000 square feet, which many landlords are reluctant to subdivide for small user requirements,” the report states.
Average net asking rents are now at $15 per square foot, down from $16 in the first quarter of 2016 and a drop of $25 from the $40 high of 2012.
Analysts note that the annual absorption of office space in better economic times has typically remained “well under one million square feet” so they expect it will be some time before the market returns to equilibrium — particularly with the pending addition of another 1.8 million square feet still under construction and destined for the market within the next two years. That said, exceptional activity is not unprecedented.
“If the energy sector were to grow at the levels experienced in the years 2010 to 2012, over which time in excess of 6.5 million square feet of office space was absorbed in downtown Calgary, we could see the office market recover within the next three to five years, as unlikely at this may appear in today’s environment,” the report advises.
