Calgary’s beleaguered office market experienced its best positive absorption trend in three-plus years in the first quarter of this year, according to a new report released Tuesday by Avison Young.
It was the third consecutive quarter of positive absorption – the change in occupied space – and it marked the first time the overall Calgary office market has had three consecutive quarters of positive absorption since the end of 2014.
Avison Young also said Calgary’s struggling downtown submarket registered its third consecutive quarter of positive absorption – a feat that has not occurred since the first three quarters of 2012.
“The Calgary office market, particularly the downtown portion, appears to be shifting towards stability,” said Todd Throndson, Avison Young Principal and Managing Director of the company’s Calgary office, in a news release. “First-quarter 2019, while slow in activity, still resulted in 28,000 square feet of positive absorption in the downtown market. When combined with the previous two positive quarters, the downtown office market has recorded 548,000 square feet of positive absorption over the last nine months.
“However, the forecasts are unclear as to what the rest of 2019 will bring. Confidence levels remain uncertain and activity could remain slow for at least another quarter. Looking to the future of the downtown Calgary office market, it is expected that absorption will be flat to negative through 2019 as companies wait to see what happens politically with the upcoming provincial and federal elections. Even with the addition of Telus Sky in first-quarter 2019, vacancy did not rise above the peak vacancy of 26.4 per cent recorded in second-quarter 2017 when Brookfield Place was added to the downtown office market.”
Calgary’s downtown office vacancy was 25.3 per cent in the first quarter of 2019, up from 24.7 per cent in fourth-quarter of 2018, but down from 25.6 per cent 12 months ago.
“Right now, many companies are taking a wait-and-see approach regarding office-space decisions,” added Throndson. “With both a provincial and federal election set to happen in 2019, some companies are looking forward to seeing what changes may result and what the impact on policy could be. It is anticipated that leasing activity – for at least the next month or two – will be quite slow. Continuing on that thread, there is some belief that there is an impending wave of activity set to commence later this year, which could drive a noticeable increase in absorption.”
Throndson said a flight to quality is expected to be a major trend in the market throughout 2019.
“Landlords are eager to complete deals. For tenants that are strategizing for their future, there is great opportunity available to take advantage of a strong tenant’s market. With rental rates and inducements being attractive, tenants are showing a strong interest in moving into better-quality buildings while keeping their cost structure stabilized. We see a lot of room for negotiation on most available space,” he said.
– Mario Toneguzzi for Calgary’s Business