Energy sector consolidation continues to plague Calgary’s office market, as the second quarter of 2022 brought two announcements that will see about 450,000 square feet of downtown space empty out in the coming months. Nevertheless, newly released stats from Avison Young show a modest dip in the overall, downtown and Class AA and A vacancy rates since the winter.
Citywide, the office vacancy rate sits at 24.5 per cent, down 90 basis points (bps) from Q1 2022. A 28 per cent vacancy rate downtown pulls up the overall average, but still reflects a 80 bps improvement from Q1. The Class AA and A vacancy rate hovers just below 23 per cent, posting a 70 bps decrease from Q1.
Across the Calgary market, there was nearly 440,000 square feet of positive absorption during the first half of this year. All of the 217,000 square feet of new space currently under construction is located in suburban office nodes, while five buildings, amounting to 709,000 square feet, are currently undergoing conversion to residential uses.
With some commercial landlords bracing for the exit of major tenants, Shell Canada and Inter Pipeline, Avison Young analysts suggest that rising oil and gas prices are spurring more leasing activity among smaller energy companies, which is also playing out as a flight to quality.
“The A, B and C grade segments of the market all have vacancy rates that are more than double the AA market,” they observe. “It appears that whether economic conditions are shaky or stable, companies are continuing to pursue and upgrade to quality real estate. This is emphasized by the desire to appeal to, impress and retain a talented and demanding workforce.”
Lower vacancy rates in the Beltline (23.6 per cent) and suburban north (17.4 per cent) and suburban south (18.4 per cent) vicinities are attributed to a more diverse mix of tenants as Calgary makes gains in attracting and nurturing tech, logistics, green energy, life sciences and media enterprises. Avison Young analysts hypothesize the downtown could be attractive for these burgeoning workforces as an employment base that is currently “heavily skewed towards oil and gas companies” evolves and expands.
“As efforts continue to attract non-traditional industries to the city, potential tenants will need to evaluate the right location and fit for their culture and workforce, as amenities and modern spaces remain in high demand,” they maintain.
