Any talk of recovery in Calgary’s commercial real estate in 2019 must deal with the 10-million-square-foot elephant in the centre of the city.
That represents the amount of vacant downtown office space. At 23.6 per cent, it is by far the highest vacancy rate of any major city in the country.
There were some improvements in the final months of last year, but for all of 2018 net office absorption was negative by more than 174,000 square feet.
Sublease space accounts for about a quarter of all the vacant offices, and most of it is in top-tier, Class A space, which is being offered at discount rates.
Oil and gas industry giant Nexen, for example, has taken 290,000 square feet of sublease space in the iconic 58-storey Bow Tower, from Cenovus Energy.
Office tenants are taking advantage of the very favourable deals in high-quality space, noted commercial agency JLL in a missive during the third quarter 2018.
“With Class A space at discounted rates, Class B and C landlords are being forced to find creative ways to stay relevant,” the JLL report noted.
JLL is among those seeing the bottom of Calgary’s office market.
“There are signs the market is reaching bottom,” according to Cresa, a commercial real estate firm, in its most recent report on Calgary’s office market.
Avison Young cautions not to expect the office numbers to change quickly this year. Groups have been “purchasing [Calgary] assets at prices not seen in more than a decade,” Avison Young noted.
In December, Sun Life Plaza, which has three 28-storey office towers covering one million square feet, was bought by Aspen Properties from Choice Properties Real Estate Investment Trust and Sun Life, for $225 million.
Industrial is promising in Alberta’s capital but it was cannabis, not crude oil, that is responsible for the biggest industrial play.
The 800,000-square-foot cannabis production facility known as Aurora Sky became operational late last year in Leduc at the Edmonton International Airport. The marijuana greenhouse and distribution centre is the largest of its kind in Western Canada.
In comparison, during the third quarter of 2018, total net industrial absorption in Edmonton and region was 145,022 square feet, according to Avison Young.
The Nisku-Leduc region also saw Ford Motors Co. moving to a new 400,000-square-foot distribution centre in Leduc Business Park. Ford will vacate a 247,000- square-foot distribution centre in Northwest Edmonton.
The Edmonton industrial market currently has a vacancy rate of 6.3 per cent, up marginally from a year ago, but is expected to slipdownward slightly this year.
Edmonton’s downtown and suburban office markets were seeing positive absorption in the last months of 2018, which lowered the overall vacancy rate to 15.6 per cent. Promising for this year is an expected rise in technology tenants, fuelled in part by a $43 million city tax credit incentive aimed at creating 3,000 tech jobs in the city over the next four years.
The ICE District is completing in 2019, expected to attract more residents and workers to the core.
Saskatoon’s downtown office vacancy rate inched downwards to 16.8 per cent at the end of the third quarter, resulting in positive absorption of nearly 25,000 square feet of space.
The suburban market, however, saw an increase in the vacancy rate to 18.8 per cent and negative absorption of more than 80,000 square feet.
“A flight to quality will likely continue as existing office users look to higher-quality space,” according to a report from CBRE.
The small size of Regina’s office market makes it particularly prone to fluctuations. Its vacancy rate increased to 10.4 per cent at the end of the third quarter 2018, bringing nearly 25,000 square feet of space back onto the market.
Little change is expected for this year across Regina’s commercial real estate landscape.
Winnipeg has added nearly 5,000 tech jobs in the last five years, bringing the total to nearly 17,000, a growth rate of about 40 per cent. That’s the second-highest growth rate among mid-sized Canadian cities, said Ryan Behie, managing director of CBRE Winnipeg.
The activity has helped push Winnipeg’s office vacancy rate down to 10.7 per cent, the fourth lowest in the country. CBRE foresees a steady improvement in the office sector in 2019.
Industrial, though, is the bright spot for the city this year.
“This is the best the industrial market has been in Winnipeg in 50 years,” said Martin McGarry, president and CEO of Cushman & Wakefield/Stevenson.
Diane Gray, president and CEO of CentrePort, said industrial buildings at that site are going up on speculation, a sign of confidence. “The developers believe we’re on the precipice of preparing for massive growth, ” Gray said.