While Calgary’s commercial office market saw its vacancy rate on the rise in 2013, a new report shows the city will remain one of the most important players in Canada this year.

Dubbed “the nation’s largest development market” in Avison Young’s 2014 Commercial Forecast, Calgary is expected to see vacancy rates escalate in 2014 thanks in part to developers bringing new supply to the downtown core.

“Though stable, it is not entirely surprising to see the commercial real estate sector in Canada pull back a little. Keep in mind, while other property markets around the world were wallowing in recession, Canada bounced back fairly quickly. If anything, we are well-positioned to exploit our proximity to the U.S., which is still the home of the globe’s largest economy,” said Bill Argeropoulos, Vice-President and Director of Research (Canada) for Avison Young.

In 2013, Calgary surpassed Toronto as the biggest development market in Canada with almost 8.9 million sq. ft. (only 38 per cent preleased) – an exceedingly high proportion of the city’s existing inventory at 13 per cent and more than twice the national average. Despite a rise in vacancy, Class AA space in the city remains extremely limited which has spurred a surge in new development. Currently, there are eight projects confirmed or under construction in Calgary, representing 5.2 million sq. ft. of space.

In retail, Calgary was just one of many markets that felt the increasing presence of American retailers in 2013. Driven by a strong local economy and high consumer spending power, TD Economics is predicting Alberta will lead the country with an annual retail sales growth of 6.5 per cent in 2014.

A key trend highlighted in the report is the changing face of retail. As more consumers look to buy online and as demand for complete communities where people can live, work, shop and play rises, developers have been encouraged to consider high-density, mixed-use projects that include street-level retail with underground parking and office and residential units above.

“The work-live-play phenomenon persists in many of the country’s downtown markets as employers are in hot pursuit of the highly educated workforce growing in increasing numbers in Canada’s major urban cores,” said Argeropoulos. “At the same time, there’s a greater emphasis by the development community to seek out and develop sites near existing or future transportation arteries, in the hope of combating downtown’s appeal by urbanizing the suburbs. Meanwhile, LEED buildings have narrowed the downtown/suburban cost gap, enticing suburban tenants to consider downtown options.”

In the industrial sector, Avison Young singled out the city’s northeast market, which saw 3.5 million sq. ft. of construction activity in 2013. According to the report, vacancy is expected to rise in the sector in 2014 as new buildings come on to the market.