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Calgary tech market still focused on growth as investment slows

Sublease space provides affordable downtown options for startups
A telus-sky-calgry-imagen_vertical-copy
Coworking space at the Telus Sky tower in Calgary is seeing 90 per cent occupancy, on par with demand in Vancouver and other major centres.

Calgary remains the star of Alberta’s tech sector, but a sharp drop in venture capital investment is keeping cost-conscious startups focused on low-cost space options.

High-profile announcements from RBC and IBM regarding innovation centres in June followed news earlier in the year that cryptocurrency firm Binance and New Zealand accounting platform Xero Ltd. would invest in the city. Amazon Web Services is continuing work on a new data centre set to open in 2023 that will employ hundreds of people.

Boston-based labour market analysis firm Burning Glass Technologies indicates 4,300 tech job vacancies in Calgary, which ranked third in a CBRE Ltd. report on the top 10 emerging tech cities in North America.

But venture capital funding flowing to Calgary companies fell to $19 million during the third quarter, down from $427 million in the first half of the year, according to the Canadian Venture Capital Association. While this represented 67 per cent of total VC investment in Alberta during the quarter, it also underscored the lean times facing companies as interest rates increase and investors take cover.

“Calgary is still in that accelerating phase,” said Stuart Watson, senior vice-president with CBRE in Calgary. “Because of that acceleration, that has also insulated Calgary … but of course some of those same [global] problems still exist, because an increased cost of borrowing definitely has every company concerned.”

While local tech companies haven’t been shedding space to the same degree as in other cities, they’re being more cautious about lease commitments.

“Calgary is on such a different trajectory when it comes to being a tech market, because we’re not mature like Vancouver is or like Toronto,” Watson said. “What we’ve seen out west in Vancouver, and then also in Toronto, is more indicative of more mature tech companies that are forced to cut some overhead.”

Calgary’s tech sector, by contrast, has smaller, home-grown companies. Research by Alberta Enterprise Corp. indicates that 64 per cent of Calgary tech companies identify as start-ups, almost all of them founded in the last three years. Approximately 53 per cent report less than $1 million in annual revenue, with 19% reporting none.

“Many tech companies have certainly gravitated towards the low-cost, shorter-term sublease market,” Watson said. “There’s still a tonne of sublease space in downtown Calgary, so moving into something furnished, possibly at operating costs for a two or three-year term seems attractive to a lot of these companies.”

Calgary continues to report the highest office vacancies of any market in Canada, at 29.7 per cent in the third quarter, CBRE reported. Sublease space accounts for 16.9 per cent of vacancies – or 3.5 million square feet, more than the total office vacancies in Vancouver where tech companies account for 81 per cent of all downtown vacancies at 383,000 square feet.

The repositioning of buildings by Aspen Properties Ltd. and others are creating opportunities for these smaller tech firms.

The Ampersand (formerly Sun Life Plaza) on 4th Avenue SW is a three-tower complex Aspen acquired in 2018 that offers tenants 57,000 square feet of amenities. Those tenants include coworking providers Western Corporate Business Centre and Regus, a brand of IWG plc which also operates at Telus Sky on Centre Street South.

Regus at Telus Sky is 90 per cent occupied, a rate that Wayne Berger, president CEO of IWG Americas, says is among the best in North America.

California-based research firm Global Workplace Analytics indicates that hybrid work arrangements can save companies up to $13,000 per employee annually. IWG’s own research in Canada indicates that 70 per cent of business leaders feel that they’ll save money if staff have the option to work remotely.

The opportunity to manage sublease space as well as meet demand from cash-tight tech companies is leading IWG to plan an additional 250 locations across Canada in the next three years, primarily in suburban or rural locations. It recently signed for 10,000 square feet in Saskatoon and is scouting other opportunities on the Prairies.

IWG currently operates 15 locations in Calgary and 18 in Alberta, all of them under the Regus banner.

“A number of our Calgary-based locations have seen increased occupancy over the last 12 months, and our network of new locations continues to grow in Calgary and within the province of Alberta,” Berger said in a statement.

Speaking to commercial real estate association NAIOP Vancouver in mid-November, Berger pointed to coworking’s importance to tech sector, both because of cost considerations and the demand for flexible work arrangements.

“We’ve continued to look to grow in the market because the demands from tech are coming to us,” he said. “They’re moving away from capital leases because of the liability, and also the movement towards flexibility.”