Calgary's downtown office vacancy rate could reach 'unseen territory' of 30% within 2 years, report says

The office vacancy rate in downtown Calgary is sitting at just a notch below 27 per cent and is on track to reach an unprecedented 30 per cent within the next year to two years, according to a new market report released Monday.

"It now appears that Calgary's downtown will cross into unseen territory for a modern, major office market in Canada within the next 12-24 months," says the Avison Young Calgary Office Market Report for the fourth quarter of 2020.

The report says that because of the combined impact of Alberta's economic downturn and the COVID-19 pandemic, the amount of space put back into the leasing market in 2020 was higher than anticipated.

Avison Young predicts that Calgary's "struggling and evolving" energy sector will continue to result in downtown office space becoming surplus to companies' needs in the coming year.

In particular, it is expected that the recent merger of Husky with Cenovus will result in roughly 2,150 job losses — a 25 per cent reduction of the reformed company's 8,600-person workforce, the report says.

Cuts of that magnitude could correlate to approximately 322,000 to 537,000 square feet of space no longer being required, given an average office density of between 150 to 250 square feet per employee.

'This is new peak vacancy'

Avison Young notes that, before the merger, Husky occupied approximately 600,000 square feet in the north tower of Western Canadian Place in the west end of the downtown core.

At the close of 2020, downtown Calgary's office vacancy rate was 26.9 per cent. That's up from 25. 7 per cent in the third quarter.

"This is a new peak vacancy for Calgary's downtown office market," the report said.

Out of 170 office buildings currently tracked by Avison Young in downtown Calgary, four are completely empty.

The most significant of the four is at 801 Seventh Ave. S.W. — formerly known as the Nexen building — which emptied out when Nexen moved all of its employees to The Bow building last year.

It offers prospective tenants approximately 600,000 square feet of office space.

The other three totally empty buildings are:

• Lougheed Building — 604 First St. S.W.

• SNC Lavalin Centre — 909 Fifth Ave. S.W.

• Eau Claire Place 1 — 525 Third Ave. S.W.

An additional seven buildings are more than 75 per cent vacant, Avison Young says. Those properties are:

• 4th and 4th — 435 Fourth Ave. S.W.

• Aquitaine Tower — 540 Fifth Ave. S.W.

• Canadian Centre — 833 Fourth Ave. S.W.

• Dominium Centre — 665 Eighth St. S.W.

• Panarctic Plaza — 815 Eighth Ave. S.W.

• 1000 Eighth —1000 Eighth Ave. S.W.

• 1019 Seventh Ave. S.W.

The former Chamber of Commerce building at 100 Sixth Ave. S.W. was listed in February 2020 as entirely vacant. However, last fall, SAIT announced that its new School for Advanced Digital Technology (SADT) would move later in 2021 into the historic red brick and sandstone building, built in 1912 as the Odd Fellows Temple.

The new school was made possible by a $30-million donation to SAIT from Calgary businessman and philanthropist David Bissett.

There are 16 properties in the core with more than 100,000 square feet of contiguous space up for lease. These blocks of space account for a quarter of the overall availability in the city's downtown.

The report says the COVID-19 pandemic prompted many businesses to reassess their space requirements as employees were forced to work remotely.

"It is still unknown what the net result on tenant demand for space will be as a result of COVID-19 as we have seen a variety of approaches. There are companies permanently adopting work-from-home policies putting downward pressure on demand, while other companies are prioritizing work in the office and are being creative with how they use space for increased social distancing and/or meeting spaces," the report said.

"It will take a few years for these decisions to fully play out in the market."

Citywide, more than 400,000 square feet of space went back onto the market in the last quarter of 2020 — the most in a quarter since 2016.

The overall office vacancy rate in Calgary's office market reached a record high 24.1 per cent in the fourth quarter of 2020.

There are 16 empty office buildings in the city, four of them in the downtown core, three in the Beltline and nine in the suburban areas.