Calgary suburban office market changing to reflect challenging demand

Landlords continue to get creative to attract tenants because of the prolonged high vacancy in the market

Mario ToneguzziVacancy in Calgary’s suburban office market decreased 30 basis points in the third quarter to 22.9 per cent due to 85,971 square feet of positive absorption, says a new report by commercial real estate firm CBRE.

But the company said fundamentals in the market remain flat. It said positive absorption in the quarter can be attributed to the continued tenant-favouring market conditions.

“A significant division can be seen across the five suburban office markets,” said the report. “The two north submarkets continue to experience lower vacancy, while the Beltline and south vacancy rates maintain historical highs. Higher Beltline vacancy is influenced by the Beltline’s strong correlation to the downtown office market. In the south, the vacancy composition will continue to transition from sublease to headlease as large unleased sublease spaces reach expiry.

“This will put pressure on landlords to divide larger spaces that were initially purposed for big engineering, procurement and construction firms. Lower northeast and northwest vacancy rates are influenced by lesser exposure to large block vacancies. When considering availability under 20,000 square feet, north market vacancy rates become comparable to the other submarkets.”

The report said landlords continue to get creative to attract tenants because of the prolonged high vacancy in the market. It said the average suburban tenant is seeking 4,000 square feet of space and landlords are creating show-suite programs for smaller suites.

“Calgary B and C landlords in particular are incentivizing tenants by offering move-in ready suites with flexible terms,” said CBRE.

“Co-working space has been a prevalent trend in Canada in recent years and Calgary now has over 10 co-working companies in the city. This trend prevailed further this quarter with demand for space from current users in the market and new entrants. In addition, landlords are considering alternatives to turn their empty office space into co-working spaces and using upgraded amenity packages to attract co-working operators.”

The report said that Calgary is experiencing an historically low period of construction. As of the third quarter, there was only 39,495 square feet under construction with one building in the pipeline.

Mario Toneguzzi is a veteran Calgary-based journalist who worked for 35 years for the Calgary Herald, including 12 years as a senior business writer.


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