Flight to quality continues in downtown Calgary office market

Tenants still shifting to top-end office space, according to Avison Young report

Mario ToneguzziSince Brookfield Place was completed in the second quarter of 2017, the Calgary downtown office vacancy rate has trended downwards, says a new report by commercial real estate firm Avison Young.

The company’s third-quarter market report says vacancy is now down to 25.2 per cent from 26.0 per cent in the second quarter of this year.

Total vacancy is 11.7 million square feet, broken down by 8.8 million square feet of headlease space and 2.9 million square feet of sublease space.

But Avison Young points out that this is vacant space that’s being marketed and doesn’t include shadow space, which is space companies have not put on the market for a variety of reasons.

“There is speculation this number could be anywhere from two to five per cent of additional vacancy,” says the report.

Avison Young says vacancy by class is: class AA, 22.4 per cent; class A, 23.3 per cent; class B, 33.9 per cent; and class C, 20.7 per cent.

“Of note, there was a distinct improvement in occupancy in higher-quality buildings this quarter. This is indicative of the flight-to-quality into AA and good quality A buildings,” it says.

“Absorption in the downtown office market for third quarter 2018 overall was positive 305,000 square feet. This level of positive absorption for the quarter returns 2018 to positive 184,000 square feet absorption year-to-date. The downtown office market continues to swing from mildly negative one quarter to mildly positive the next quarter. Third-quarter 2018 saw positive absorption for class AA buildings continue for the third quarter in a row. Over the last three months, class AA buildings saw positive 144,000 square feet absorption, class A saw positive 180,000 square feet absorption, class B saw negative (25,000 square feet) absorption and class C saw position 4,000 square feet absorption.”

Avison Young says the last remaining downtown office building under construction is Telus Sky, with 460,000 square feet of new office space and is 39 per cent pre-leased.

“With the addition of Telus Sky at the end of the year, vacancy is forecasted to rise as high as 26.6 per cent upon delivery,” says the report.

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.


Calgary office space

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