At one time Calgary was known for mega-space office deals as large resource companies casually took 100,000-square-foot footprints or more in the city’s downtown towers.
Today, after four years of negative absorption, it is small space that is now leading demand, according to a survey by Avison Young.
“One of the biggest changes is the dominance of deals being completed for space under 5,000 square feet,” the commercial real estate agency noted in a second quarter report on Calgary’s office market.
“This, combined with the volume of sublease space on the market from larger tenancies, strongly underlines the presumption that the average tenant in Calgary has shrunk significantly in size,” the report added.
The rejigging of space to accommodate smaller offices is proving expensive for landlords, but the pay off could come in easier renewals, Avison Young noted.
Calgary’s current office vacancy rate is 23.5 per cent, with the downtown vacancy rate at 26 per cent, according to Avison Young. It is nudging 20 per cent in the Beltline and much of the suburban markets.
Large blocks of office space – defined as 100,000 square feet downtown or 30,000 square feet in the Beltline – represent 35 per cent of the vacant space city-wide.
However, the second quarter reported negative absorption with 231,000 square feet more being shoved back onto the market than was leased up. In the past five year, absorption has been negative by 1.2 million square feet annually, while new construction has added more than 10 million square feet of new office space.
But the market may be in sight, with Calgary’s unemployment rate dropping, the office vacancy rate is not increasing and lease rates are holding firm.
As well, the two new office buildings recently completed – the 160,000-square-foot Hexagon Calgary Campus and the 28,000-square foot Mount Royal West – were both fully leased at completion.
Avison Young said a realistic prediction is for positive absorption of 200,000 square feet in the last year of this year, rising to 600,000 square feet in 2019.