2011 Q3 Summary

The Calgary downtown office market has experienced significant absorption at levels that even Calgary has never experienced.

Our 2 year (7 quarter with 1 more quarter to report) absorption downtown is over 6 million square feet.  Please note that our average annual absorption over 10 years is approximately 550,000 square feet per year.  A short while ago, conversations on the office market would discuss if a new office tower will be built.  Now the discussion is which new office tower will be first and how many towers will be under construction in 2012.

Positive (and negative) absorption in the AA and A class office space one of the significant indicators of the economic health of the city of Calgary.  To date vacancy in AA class office space is 1.8%.  A client of mine is currently looking for a full floor of AA class office space and we have zero options.  This information alone helps one draw the conclusion that construction of a new office tower is imminent.

Net rental rates have increased dramatically with absorption.  Some buildings have achieved a $1 per square foot increase per month in 2011.  The velocity of this rate increase is similar to the boom market of 2005.

As an example, Bow Valley an A class complex, completed net rental deals in and around $19 in the beginning of the year and now Bow Valley is asking and getting $30 per square foot. In the B class, Life Plaza 734 - 7th Avenue was at $14 net rent in Q1 and now is asking $24 net rent.

Absorption levels and leasing activity has to slow down as there not enough space to accommodate our current volume of absorption  in the AA and A class office buildings. 

See attached for more details Q3 2011 Report

2011 Q1 Summary

The momentum from 2010's incredible demand for office space has carried over into Q1 2011.

Highlights of Q1-2011 office market activity:

• Absorption in Q1 was 667,000 square feet - this is greater than the 10 year average ANNUAL absorption downtown.
• All the buildings in the last construction cycle, comprising just over 5.8 million square feet, are now part of the downtown office inventory and are over 93 per cent leased.
• Calgary downtown has more occupied space then the Boom and is continuing to set new record high levels. 

2011 Q1 Market Snapshot

It appears that the strong Q1 leasing activity has resumed where 2010 left off.

New absorption continues to be the story. 

• Bell is anticipated to secure approximately 90,000 sf and will move back downtown.   It is rumoured that the former ERCB Building is the destination.
• Meyers Norris Penny  is rumoured to have secured 4 floors or 60,800 sf in the former ERCB Building.  
• Schlumberger is on the market for 160,000 sf.  
• Standard Land renewed in Life Plaza and secured an extra 10,144 sf on the 15th floor.
• Capital Power secured 47,000 sf in Gulf Canada Square.
• Matthews Southwest has submitted development permit application for the 2nd Bow Tower and Enbridge is rumoured to have secure the entire +/- 300,000 sf.  If this occurs, then this new inventory will continue to assist tenants with >12% vacancy downtown well into 2013.

2010 Office Market in Review

2010 began with a great amount of uncertainty as 2009 ended with negative absorption of almost 1.6 million square feet.   2010 in comparison, ended with record total absorption of over 2.6 million square feet. 

Interestingly, the average CBD office tenant requires an average of 300 square feet per employee.  This suggests the CBD will hire 8,600 new employees. 

CITI Commercial has no listings and no landlords to report to, therefore we brought in The Bow into our inventory before every other brokerage.  We can do this because tenants are able to complete transactions in Encana's soon to be vacated space.

Looking ahead, the result of the Encana backfill space, without another severe economic downturn, is that vacancy will continue to fall for the next 2 years to around 12% which is a more balanced market for tenants and landlords. The vacancy peaked at 15.7% (the 2009 year-end rate) 2010 ended with a vacancy rate of  14.4%.

Good covenant sublease remains an attractive alternative to head lease options. The flight to better location and quality continued, however even the lower quality buildings had vacancy rates drop during the year. Landlords that lead the market in discounting their space have been very successful in attracting new and retaining existing tenants especially in the A and AA classes.

• Recent news is that H&R Reit has taken out their development permit to construct the South Bow Tower.  Rumours are that Enbridge is the anchor tenant in about 300,000 square feet.  It is not reasonable to think that this building is being built on Spec without a lead tenant in place.
• Shaw Communications have taken on 85,000 square feet in Scotia Tower.  Shaw has hired over 100 engineers and require many more to work on their projects which include developing their wireless network.
• Schlumberger Canada is on the market to secure 160,000 square feet. 

2010 Q3 Summary

Year to date, the downtown office market has experienced almost 1.1 million square feet of positive absorption.  In context, the Central Business District’s 10-year annual average absorption is 500,000 square feet.  This absorption leaves Calgary’s CBD with an over all vacancy rate of 13%.  Of the almost 5 million square feet of vacancy, 1 million square feet is sublease space or almost top of 3% the total vacancy. 

As a leading indicator this is quite a “green shoot” (as the Economists would say).  1.1 million square feet of positive absorption roughly means 3,500 jobs were created or anticipated to be created, (if you were to use an average of 300 square feet per employee). 

With Eight Avenue Place and the Bow becoming occupied in late 2011 and early to mid 2012 respectively, tenants in Calgary will continue to experience a strong tenant’s market with over 13-17% vacancy.

Currently smaller tenants, less than 10,000 square feet have less office space options and price points to choose from vs. mid-size office tenants which are 10,000-20,000 square feet.  Tenants in the 2,000 to 8,000 square foot size range have been very active this year and we have seen space with high quality existing improvements leave the market quite quickly.  Going forward, I anticipate Landlord’s and Sub-landlord’s of the plentiful >10,000 square foot office premises to incur the cost of demising said space to appeal to the smaller 2,000 to 8,000 square foot user.

2010 Q2 Summary 

Our Q2 office market summary shows downtown vacancy at 15.7%.  The sublease market accounts for 32% of this vacancy from downtown inventory that has grown to 38,250,000 square feet. Currently, downtown Calgary has 1.9 million square feet of available sublease space.

Updated: Nov 10, 2011