A report detailing Calgary’s bustling downtown office market is suggesting a potential over-abundance of space could result in increased vacancy.
With as much as 7.5 million sq. ft. of space set to come to the downtown core over the next four to five years, a report from Cresa calls the potential impact of the current level of development “significant”, adding to the possibility of increased vacancy in the area.
“If landlords are unable to lease any large pockets of available space, there could be increasing pressure for additional incentives or slightly more advantageous rental rates,” stated the report. “Any leasing activity that does occur in new developments would reduce forecasted vacancy in the delivery years of each building.”
According to Cresa, vacancy increased during the second quarter of 2013, rising to 4.82 per cent.
Included in the developments already proceeding downtown are the 841,000 sq. ft. Eighth Avenue Place, the 820,000 sq. ft. Calgary City Centre and the 613,000 sq. ft. Eau Claire Tower — all of which are scheduled for completion in 2016. At 1.4 million sq. ft. and standing 53 storeys tall, Brookfield Properties’ 225 Sixth project represents the largest pending project in the works, however completion isn’t scheduled until 2017 at the earliest.
The big news downtown in the second quarter came with was the announcement of Telus Sky, a mixeduse 750,000 sq. ft. office tower located at Centre St. and 7th Ave. S.W. and set for completion in late 2017. Telus Communications will occupy approximately a third of the 430,000 sq. ft. designated for office use. The remainder of the tower will consist of residential and retail users.
Once completed, the new projects in the area will bring the total new office space inventory to 12.3 million sq. ft. since 2006.
According to the report, the influx of new Class AA and A offices could have a trickle down effect on other markets, meaning renters of Class B and C tenants could be in for a bit of a bargain.
“With class C vacancy already creating a theoretical “tenant market”, the competitive outlook can be very different to those tenants wise to their true leverage. If the vacancy differential in the C market increases in proportion to the overall vacancy rate, we may see additional incentives and perhaps rental rate reductions in this class over the next few quarters,” stated the report.