Calgary office vacancy rates slowly start to decline as companies are optimistic for economic recovery

More than 14 million square feet of office space is still available for lease in Calgary’s downtown core, but vacancy rates are slowly beginning to trend downward.

According to the latest first quarter 2022 numbers from CBRE, Calgary saw a net positive of 63,000 square feet absorbed, which reduced the overall vacancy rate by 40bps to 32.8 per cent.

This marks the first quarter of positive market fundamentals since the beginning of the COVID-10 pandemic, sparked primarily by growth in the tech sector.

Greg Kwong, CBRE managing director for the Canadian Prairies says sublease space that was on the market over the last couple of years has either expired, been sublet, or had companies take space back.

“That’s slowly starting to eat up a little bit of space,” he said. 

“It’s good news that I think we've reached bottom and don't expect to go any higher as far as the vacancy rates are concerned, but it's baby steps at this point, we're by no means partying in the streets.”

Jobs, Economy and Innovation Minister Doug Schweitzer adds there has been renewed energy in the city sparked by a slight recovery in the oil patch.

“They're looking at taking more space downtown, plus people coming back to work so that is all kind of all the leading indicators are heading in the right direction, and we're seeing lots of positive opportunities,” said Schweitzer.

“The biggest thing for us is that it's going to take time for us to solve some of the challenges facing the downtown of Calgary in particular, this is going to be pulling on many levers looking at things from post secondary institutions to the vibrancy of our arts district.”

That kind of vibrancy is what drew tech company Unity to the downtown core following their procurement of 25,000 square feet of office space at Brookfield Place in early 2020.

The COVID-19 pandemic forced them to cancel their grand opening until just last week, but heading back to work is more exciting than ever for the firm. 

“There is incredible optimism and incredible opportunity here in Alberta to grow a tech company,” said Nick Facey, program manager of solutions at Unity.

“The convergence of creativity and tech brings huge value to doing things in person, so we proved that global and remote work can work, but it doesn't meet the human needs and it doesn't meet the informal collisions that happen when you have people maybe not working on the same project together or crossing the hallways.”

Unity has several meeting areas, a wellness room, cafeteria space, and in-house amenities it hopes will attract young talent to the tech sector in Calgary, specifically those studying locally.

Facey adds the company’s goal is to expand even further and utilize two more floors of Brookfield Place which would give them a total of 75,000 square feet of space to attract young talent to Calgary’s tech scene.

“Then those students are more likely to pursue that in post-secondary, so there’s post-secondaries offering more seats, and instead of leaving town to Seattle, or Silicon Valley or Austin, they actually see the career potential and opportunities right here.”

The hope of an economic rebound is also good news for businesses that have seen declines in their sales during the COVID-19 pandemic.

The Bow Valley Athletic Club came under new ownership in January of 2021, which gave the facility the opportunity to close temporarily and undergo a $2 million renovation.

Future plans also include the conversion of vacant office space into residential dwelling units in the hopes of developing a more vibrant downtown community.

Dean Brown, CEO of the Bow Valley Athletic Club, says back to work orders are providing a much-needed boost to the facility which is now betting on a downtown revival.

“Our 600 members are mostly downtown people, they work in the downtown core here, so people coming back to work is a huge deal for us,” he said.

“Bow Valley square is really centre ice downtown Calgary so I think what's happening is a lot of these tenants that are in B spaces are now coming right into the core. Although vacancy in the outside perimeter of the city is still there, we’re finding that downtown Calgary is actually getting quite active again.”

More affordable office locations outside of the core however are also slowly becoming desirable again for other tech firms like Athennian which recently closed its Series B funding and leased out just under 8,000 square feet of space in the Beltline.

Employees with software company Athennian, which recently leased just under 8,000 square feet of office space in the Beltline.

Tami Miguens, senior director of application architecture says the cost of living in Calgary is more attractive than other tech hubs such as Vancouver, Toronto, or in the United States.

Despite office vacancy still remaining high, she is confident the Beltline area will soon flourish.

“The Beltline is a great a great choice for us and some really think this fits the company well, and it really fits tech well,” Miguens said.

“We’re starting to see a lot of tech communities and companies opening up here in the Beltline, it’s almost becoming a little hub and so I think that's here to stay."

INDUSTRIAL LEASING SPACE VACANCY RATE HITS EIGHT YEAR LOW

More than 1.9 million square feet of net positive absorption of industrial space occurred in the first quarter of 2022 for the City of Calgary, according to CBRE.

This marks the fifth consecutive quarter where over a million square feet was absorbed and now an eight-year low for vacancy rates in Calgary’s industrial leasing market.

Kwong notes that the COVID-19 pandemic actually helped accelerate the need for industrial space with a lot of e-commerce companies opening up in the city and surrounding area.

“We are going to see more of this only because we’re seeing now that the supply chain for construction material is really constraining the amount of supply that can be delivered to accommodate this growing demand from the e-commerce sector,” he said.

“So there could be a point where vacancy rates drop and things are too tight for some of these big e-commerce companies to move here, but hopefully that doesn’t happen. I’m just hoping the supply chain starts to loosen up so that we can start building more.”

CBRE adds that local and out of province businesses have also been looking to purchase and take advantage of lower interest rates to avoid the high costs of new building.

In turn, this has driven up rental rates to a 13-year high of $8.90 per square foot.