The persistent vacancy rate of downtown office space in Calgary above the 20 per cent level for the past few years is unprecedented and there seems to be no end in sight to the challenges this particular commercial real estate sector is facing.
“This story needs to be understood and absorbed in the rest of Canada. Just how weak is the economy in Alberta? In all former economic downturns (busts) in Alberta, the vacancy rate in downtown Calgary peaked into the low 20 per cent level for one year, before falling back down into the high teens. Today and since 2016, the Calgary downtown office market vacancy rate has been above 20 per cent. That is four straight years with 20 per cent plus vacancy and no end in sight,” said Michael Gigliuk, Vice-President, Associate, with Devencore.
It was recently revealed that the 801 Seventh Building in the west end of downtown, and formerly known as the Nexen Building, is now completely vacant. The office tower is 37 storeys with about 600,000 square feet. It became empty when the energy company, a subsidiary of Hong Kong-based CNOOC Limited, moved its headquarters to the Bow Tower for 290,000 square feet.
Calgary’s downtown office market has been suffering since the collapse of oil prices in the latter half of 2014. That led to recession years in 2015 and 2016 when thousands of jobs in the energy sector were shed. The impact reverberated in downtown Calgary as companies got rid of excess office space due to having fewer workers on staff.
And a recent report by CBRE does not paint a positive story moving forward.
It said the downtown office market will continue to be challenged this year with real estate vacancy rates forecast to rise.
In the report, CBRE said Calgary’s downtown office vacancy rate is expected to rise to 29.1 per cent this year from 27.2 per cent in 2019.
“Stakeholders continue to look for solutions to the historically high vacancy rates in downtown Calgary. The repurposing of empty offices into other uses has been the most widely discussed solution, however challenges with this strategy remain. These include non-viable floorplates, complex construction and a lack of 100 per cent vacant properties. While few candidate buildings may proceed, the number of viable conversions is limited and will only have a minor impact on the 11.5 million square feet of vacant space downtown,” said the report.
