Big energy companies fuelling increased demand
By Mario Toneguzzi, Calgary Herald
CALGARY — The demand for top-quality downtown office space in Calgary will push the vacancy rate to zero in that market by this spring, says one of the city’s commercial real estate firms.
Todd Throndson, managing director of Avison Young in Calgary, said “we’re almost there today” as Class AA vacancy downtown was 0.3 per cent at the end of 2011 and it was 2.5 per cent for Class A space.
“I would say by spring time we will be at zero vacancy effectively,” said Throndson of the demand for top-quality office space.
“The market started improving roughly about 24 months ago. It started with big companies that are largely related or have some relation to the (oilsands) looking long term and saying ‘we are going to have a need for space. While we don’t necessarily have this project requiring employees today, we do need to make sure that we have space to run our business accordingly in the future’.”
The low vacancy rate comes despite the addition this year of nearly two million square feet with the new Bow tower which will be home to energy giants Cenovus and Encana.
According to an Avison Young report, the flight-to-quality continues to shape Calgary’s office leasing market and has prompted a new development cycle. The west tower of the second Eighth Avenue Place, the Eau Claire Tower, the Herald Block and the City Centre building would add a combined 3.3 million square feet to the downtown market over the next five years if they all proceeded.
Overall, the downtown office vacancy rate in Calgary dropped from 10.6 per cent to 4.5 per cent in 2011. In the fourth quarter alone, there was 650,000 square feet of absorption — the change in occupied space — and a 1.7 per cent drop in the downtown vacancy rate.
For 2011, a record 2.4 million square feet of downtown office space was absorbed.
In the Class AA market, vacancy fell from 8.2 per cent to 0.3 per cent at the end of 2011.
“The (oilsands) have continued to stay strong. A lot of companies have continued to add projects and, because they’ve been adding projects and their capital budgets have started to get replenished and they have more money to spend, they’re now saying they now need to do these things and they’re taking on more space,” said Throndson.
“It didn’t take very long, with some of these companies eating up the amount of space that they were eating up, for our vacancy to come tumbling down.”
Also, many companies did not want to get trapped like they were in 2005, 2006, 2007 with not having enough space to accommodate their growth, he said.
“And having to pay exorbitant rents to be in B-class type buildings, being in small floor plates, inefficient space, having space scattered all across the city.”
A new report by Jones Lang LaSalle said Calgary is expected to outperform all other Canadian cities in leasing activity for the office market due to the expansion of the energy sector.
“New office development is likely to be announced in the coming months,” it said