By Ian Bickis
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 thriving financial pulse of the energy industry is likely to worsen, a commercial real estate firm says.
In an update 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.
"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."
He 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.
"Having gone through a recession in Toronto and a few of them here in Calgary, this one has been very swift."
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.
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.
The downtown core also has about three million square feet of office space under construction, but Kwong said most of that won’t come onto the market for a couple of years.
The extra space could further push up vacancies, but Kwong said another slight increase won’t change the market.
"When you’re talking two or three per cent it’s the same thing," said Kwong. "It sucks."
With rental rates down 28 per cent in a year, prices have dropped to an average of $20.97 per square foot for top−tier class A office space from $29.23 in the same quarter a year ago, CBRE said.
Not all commercial real estate in the city has been as affected though. Suburban office space held steady from the last quarter, and the industrial real estate market is still robust because it’s not tied to oil and gas, Kwong said.