The City of Calgary's recently released Calgary & Region 2013-2018 Economic Outlook predicts $4.4 billion in new Calgary construction for this year, and $4.8 billion in 2014 - that after strong totals of $4.5 billion in each of 2011 and 2012. The office sector, with more than 2 million square feet underway downtown alone, is fueling a lot of the building, despite apparent red lights flashing.
Lease takeups for downtown offices in Calgary went negative in the first quarter, to the tune of 255,000 square feet, according to Colliers International. This is the first quarter in four years to post negative absorption, and Colliers blames a softening the oil and gas industry, which represent 75 per cent of all downtown office space.
"Many tenants in the energy sector are placing surplus [office] space on the sublease market," Colliers explains. There is now 689,100 square feet of sublease offices available, double the figure from December 2012.
However, Class AA space remains tight, at a 1.18 per cent vacancy, while the entire down market has seen vacancies inch up to 4.35 per cent.
A number of new towers are proceeding. These include the 41-storey, 800,000- square-foot Eighth Avenue Place West Tower, to complete in 2014 - and 97 per cent preleased; the 850,000-square-foot Calgary City Centre tower, to open in three years; and Oxford Properties Group's 25-storey, 600,000-square-foot Eau Claire Tower, also set to open in 2016. Nearly all of that space has been committed, half of it to MEG Energy.
Partly linked to distribution demand from the white-hot retail sector, Calgary's industrial real estate market is posting strong gains, however. In the first three months of this year, more than 408,000 square feet of industrial space was leased up. However, 900,000 square feet of new industrial space was added, pushing the total inventory to more than 111 million square feet and the vacancy rate up to 6.6 per cent, according to a survey from Cushman & Wakefield. Several large projects are underway, and expected to add an additional 3 million square feet by next year.
For a full report on Calgary's real estate market, see the June issue of Western Investor.
