Commercial vacancy rates near all-time highs, according to reports
A new report is summarizing Calgary’s downtown office market in one word: scary.
CBRE Ltd. first-quarter results released earlier this month show that the vacancy rate in Calgary’s core ballooned to 20.2 per cent during the first quarter of 2016. That’s up from 11.8 per cent the same time last year, and 17.6 per cent from the fourth quarter of 2015.
Greg Kwong, who heads up the commercial real estate firm CBRE Ltd’s office in the heart of the oilpatch, expects the worse is still to come for Calgary’s office market as the local economy sputters in response to depressed oil prices.
“We’re probably one and a half percentage points away from the all-time high since the 1980s – 22 per cent,” he said, anticipating the city will hit that peak sometime this year.
The city’s suburban office market is exhibiting similar trends, with the vacancy rate increasing to 19.3 per cent so far this year from 15.4 per cent a year ago and 19.1 per cent in the preceding quarter.
In the industrial market, the vacancy rate increased to 7.3 per cent in the first quarter from 4.2 per cent during the same period last year and seven per cent in the fourth quarter of 2015.
Kwong also noted sublease space is at an all-time high as a percentage of overall vacant space and more vacant space is expected to come.
A report by Barclay Street Real Estate confirmed as much, noting sublease space as 45 per cent of the overall total. That report predicted the vacancy rate could reach close to 24 per cent by 2018.
Coupling the vacancy problem is the expected addition of several new office towers to the skyline over the next two years, which will add an estimated several million square feet of new space to the inventory.
“It’s the worst storm you could possibly have between no demand and just supply coming on,” said Kwong.
A separate report by commercial real estate firm Cushman & Wakefield noted the overall vacancy rate over the first three months of 2016 jumped to 7.6 per cent from 4.3 per cent during the same time last year.
Brent Johannesen, vice-president of industrial sales and leasing for the company, similarly attributed the rising vacancy rate to the downturn, as well as new construction – primarily in the large-format distribution properties.
“Service and manufacturing sectors have seen the largest ratio of sublease product come to market,” said Johannesen, adding that, due to the lack of new construction, the overall vacancy rate is near its projected peak and expected to trend downward toward the end of the year.
In the first quarter of the year, net absorption – which is the change in occupied space – was a negative 992,992 square feet. A year ago, it was a positive 477,738 square feet.
The average asking rent has also dropped to $9.43 per square foot this past quarter, compared to $9.96 last year.