Welcome to the new normal.
That’s the message from latest downtown Calgary office market report by real estate firm Cresa. It looks at data and activity in the first quarter of this year.
“A quarter of the downtown core remains vacant, job growth is flat, and general market sentiment remains tepid at best. Calgary is not threatening to boom like it used to – it is merely operating within a more consistent, quieter status quo,” said the report.
“The new year started similarly to the way 2018 did, as again the first quarter experienced positive absorption, though not enough to make any material change to market conditions. Vacancy now resides at 24.34 per cent, down from 25.06 per cent last quarter.”
Cresa said the first quarter was reasonably active compared to previous ones, and there was both some surprising and encouraging news coming from the A and B classes, which absorbed 128,381 square feet and 127,279 square feet respectively.
“The A and B classes, which have been the two hardest hit classes for most of the last two years, made somewhat of a rebound. More interesting, still, is where the new leasing came from. Typically, we would expect to see a flight to quality, which in this case would mean the creation of new vacancy within the C class. However, the C class also experienced positive absorption in the first quarter, leading us to believe that the absorption in the A and B classes was the result of one of two factors: (a) movement from the suburbs to downtown, and/or (b), companies expanding their office footprint, either by leasing more space or by pulling space off of the sublease market,” said the report.
“Given that the suburban market was only subject to moderately negative absorption in the first quarter, factor (b) appears to have been the driving force for the uptick in absorption this past quarter – an optimistic sign for Calgary.”
For the first time since 2011, every class segment experienced positive absorption, and although no single class saw a major influx of leasing, there was growth across the entire downtown market, said Cresa, adding that the market is acting unpredictably.
“While we expected some positive leasing from new companies, particularly in the cannabis and technology sectors, we anticipated greater fallout from struggling energy companies. Anticipated merger and acquisition activity within the oil & gas sector did not occur during the first quarter, and leaves us asking: if not now, when?,” it said.
“Despite positive figures coming out of the first quarter, as we look forward through 2019, we are continuing to forecast moderate negative absorption. When taking stock of the inventory picture, there are still large blocks of contiguous vacancy that we anticipate will reach the market by way of sublease in the calendar year. Seemingly inevitable M&A activity, coupled with existing ghost vacancies, have the potential to again drive vacancy upwards over the remainder of the year. Hopefully we will see more quarters like Q1 2019, but for the time being, we remain firmly in a tenant’s market, and should remain in one for many years to come.”
Mario Toneguzzi is a Troy Media business reporter based in Calgary. He writes for Calgary’s Business.