Calgary’s commercial sector still going strong
The Calgary Tower’s new, much-discussed exterior lighting system may serve as more than an eye-catching attraction. It might also shine new light on the city’s burgeoning commercial sector, which, according to new statistics, is leading the country in a number of key categories for 2014.
Commercial leasing activity in the city is among the most active in Canada, with companies having snatched up 1.2 million square feet of space through the first nine months of 2014, according to commercial real estate firm CBRE Limited.
Continued demand for commercial space in Calgary, meanwhile, has created one the tightest markets in Canada. As of the third quarter, the overall vacancy rate in Calgary’s downtown office market stood at just 9.1 per cent. Toronto had the tightest market in the country with a vacancy rate of 5.3 per cent.
“Downtown is (always) going to have a high demand,” said Rick Urbanczyk, senior vice-president of office leasing and sales with real estate firm JLL Calgary. “The majority of oil and gas firms are here, law firms are here and we’re a transit-oriented city where it all funnels into the downtown. That’s just kind of the way it works.
“We don’t have hubs for transit outside of our downtown core, so I think that’s where you’re going to continue to see demand in our marketplace.”
As for how much renters are shelling out to obtain space in Calgary’s thriving office market, the average Class A rent in the core is $33.40 per square foot, outpacing second-place Vancouver ($33.15 per square foot) and third-place Toronto ($27.31 per square foot).
The average-sized tenant also continues to grow. Two to three decades ago, only a handful of companies in the city would occupy 800,000 square feet or more, said CBRE Limited executive vice-president Greg Kwong.
“Now, there’s probably double that,” he said, noting downtown’s 10 largest tenants are responsible for nearly a quarter (23.56 per cent) of the occupied space.
Meanwhile, continued demand for downtown commercial space has sparked a boom in new office construction. While the total dollar amount invested in Calgary’s commercial market during the first half of the year dropped to $1.4 billion from $2.1 billion in 2013, according to a report from Avison Young, more than 841,000 square feet of office space has already been added to the core this year.
Another 3.8 million square feet is under construction, including the 760,000 square-foot TELUS Sky tower and 2.4-million-square-foot Brookfield Place development. Brookfield Place, at 246 metres in height, will be the tallest building in Western Canada when completed in 2017. It has already leased one million square feet of space to energy giant Cenovus, which is expected to move in by 2018.
With another 9.7 million square feet of office space proposed for the core, Calgary’s downtown office market could expand by as much as 25 per cent over the next several years, according to a report from JLL.
“Though tenant demand for office space is softening, this is not expected to be a long-term trend as the city is forecast to lead the country’s GDP growth over the next five years, mainly driven by the strength of the local resource sector,” said the report.
The Canadian Association of Petroleum Producers (CAPP) estimates oil production for Western Canada will reach 3.7 million barrels per day by 2025, which will mean the region could represent nearly five per cent of global oil production.
Increased construction and diminishing vacancy rates could lead to some companies looking outside of downtown for office space, according to some industry experts. Imperial Oil has already announced plans to construct a new 820,000-square-foot headquarters in Quarry Park, moving its employees from several locations throughout the core.
Calgary’s suburban office market has ranked as one of Canada’s most active this year, with 1.8 million square feet of space under construction. Calgary’s suburbs have also seen the highest level of leasing activity in all of Canada, with more than 400,000 square feet of year-to-date absorption – nearly double the next busiest market, according to CBRE.
Companies choosing to stay downtown, meanwhile, will be inhabiting buildings constructed on smaller lots than those in past years, suggested Urbanczyk.
“[The old Imperial Oil site] is kind of the last big million-plus square-foot building unless someone consolidates some sites,” he said. “Will we start to see some of the buildings that are functionally obsolete or becoming functionally obsolete in this marketplace start coming down? That’s kind of what we’re faced with right now.”
Telus Sky – one of the more noteworthy developments coming to the core – will stand 221 metres high and encompass 750,000 square feet of mixed-use space. The average floor plan, however, will measure just 18,000 square feet. In comparison, the recently completed Bow tower, at 237 metres high, has an average floor plan of 38,564 square feet.
“You look at what Manulife is doing with the Brion building and what Telus Sky is doing – they’re both pretty compact sites that are putting up 750,000 square feet,” said Urbanczyk.
“So we’re starting to developers get a little more creative with their site selection and what’s available.”