According to a new report from Avison Young, the vacancy rate for office towers in downtown Calgary broke a new record in the second quarter of 2021 and now stands at 29.2%. This is an increase from 28.9% in the first three months of 2021 and 25% in the second quarter of 2020.
The company now forecasts downtown Calgary’s vacancy rate to hit 30% over the next three months, with more than 14 million square feet of empty space.
Avison Young’s most pessimistic projections show that the vacancy rate climbs to 34% before reaching its peak.
Reports from the 1980s suggest that Houston hit an office vacancy rate in its thirties during that decade. Downtown Denver also struggled during this time. (It can be difficult to compare vacancy rate statistics over time, as different brokerage firms use different formulas. Some only look at buildings over 100,000 square feet, while others look at all buildings over 20,000 square feet, for example.)
A vacancy rate in the city center above 30% would be unprecedented
But in Canada, a downtown vacancy rate of over 30 percent is unprecedented – and it’s “exceptionally rare” anywhere else, said Susan Thompson, head of insight at Avison Young. If the vacancy rate in the office market were to rise to 34%, it could be a North American record.
“This kind of vacancy rate hasn’t been seen in a large modern office market since probably the Depression Era,” Thompson said.
“I go on conference calls with my counterparts all over the world and they all shake their heads and say, ‘This is not a number that I can understand. “”
The occupancy rate of energy-related companies fell from 57% to 32%
Downtown Calgary has been badly hit by years of low oil prices and a wave of mergers, acquisitions and layoffs in the oil and gas industry.
In one high-profile example, the merger of Cenovus Energy and Husky Energy earlier this year was expected to result in more than 2,000 layoffs – the majority in Calgary.
Energy and related engineering companies occupied 57% of downtown Calgary in 2012.
They now occupy only 32 percent of the city’s downtown area.
5 buildings in the city center are completely empty
According to Avison Young, five of Calgary’s 170 downtown office buildings are currently completely empty, and there are seven other properties with at least 75 percent vacancy.
But as dire as the latest numbers are, Thompson said, there are signs of hope.
The vast majority of commercial real estate transactions currently taking place in downtown Calgary involve offices of less than 10,000 square feet. While these small deals won’t make up for the loss of large oil and gas tenants, it does indicate that other industries – including the high-tech sector – are taking hold.
“We end up seeing the tide turn”
Real estate is a lagging economic indicator, Thompson said, so office market vacancy rates are slow to start improving even as local conditions improve.
“It takes time to play,” she said. “But we end up seeing the tide turn. “
In April, Calgary City Council voted to spend $ 200 million on the early stages of the strategy to find a long-term solution for the downtown area.
The approved plan includes investments in infrastructure, equipment and improvements to the streetscape, as well as setting aside $ 45 million in incentives available for office-to-housing conversion projects.
Some industry watchers say the downtown Calgary office market has already passed the 30 percent threshold.
According to commercial real estate company CBRE, the office vacancy rate in downtown Calgary reached 32.7% in the second quarter.