Vacancy Rate Rising In Calgary Office Space

The Calgary office space market is facing a slow down. The vacancy rates have shot up in the aftermath of the falling oil prices. The trend is expected to pass into 2015 as well. The details of the market were captured in a survey conducted by commercial real estate firm Newmark Knight Frank Devencore. It found that the downtown office market is experiencing a spurt in vacancy in the second consecutive year.

According to the study, compared to 0.4 percent in the fourth quarter of 2013 the vacancy rate jumped to 6.9 percent in the third quarter of this year. The analysts are giving different reasons for it. "The increase in vacancy rate has been there since mid-year, largely influenced by falling oil and gas prices, which were down by 14 percent and 12 percent over the third quarter," commented Michael Gigliuk, vice-president with Newmark Knight Frank Devencore in Calgary. Gigliuk said the weakening economics of the industry is behind the rising energy production and slowing of economic growth worldwide. That is now resulting in a drop in capital investment and expenditures in the Western Canadian Basin.

Steady Rise in Vacancy

The agency, after documenting the rising vacancy level in office space in the last 3 years, said it has mostly taken place at the upper building class levels. The AA space vacancy rose from 0.5 percent in the fourth quarter of 2012 to 2.2 percent in the fourth quarter of 2013 to 5.1 percent in the third quarter of this year, reported Canada News.

Knight Frank said the total downtown inventory in Calgary office space was about 41 million square feet, in which close to 14 million is in AA space. On the supply side, about 4.1 million square feet of new construction is underway in which 60 percent is pre-leased. Another 4.7 million square feet is in the pre-leasing stage and waiting for anchor tenants, before starting the construction. At the supply side more volumes are expected. Several blocks of space ranging from 60,000 to 250,000 square feet are scheduled to come into the market, over the next year, added Gigliuk. He also said it was a little too early to determine the impact on the downtown office market from the recent slump in oil prices.

But it will have an effect on the sublease market right away. There is a good quantity of upper-class inventory on the market for tenants to to take.

Outlook Positive

According to a new report by CBRE Limited, the spiral in vacancy rates notwithstanding, the outlook is still optimistic for Calgary's commercial real estate market. "Despite the drop in oil prices in the latter half of 2014, there is a sense of long-term momentum and growth in Calgary," said CBRE executive vice-president Greg Kwong. He told Calgary Herald that construction in all sectors such as office space, hotels, industrial, retail is injecting new supply into the market and it is expected to be absorbed comfortably.