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Calgary has witnessed high citywide office vacancy rates this year, making numerous commercial real estate (CRE) investors in the city and across Alberta concerned about the future. Nevertheless, both real estate experts and experienced investors believe the numbers are set to improve and that Alberta will lead Canada in economic growth.
The latest quarterly report by Avison Young, a Toronto-based global commercial real estate company, shows that Calgary office vacancy rate reached an all-time high in the second quarter of 2021.
The citywide office vacancy rate is now 26%. That’s a slight increase from the first quarter when it was 25.6%.
In the Beltline, the vacancy rate reached 24.6%, while downtown has been hit the hardest, witnessing the rate of 29.2%.
Calgary’s suburban areas were not hit as hard as their downtown counterparts, with the south having a 21.6% and the north having a 19.3% vacancy rate.
These rates come and go in various asset classes through different market cycles, so it does not surprise many seasoned CRE investors.
Avison Young’s report shows estimates of continued vacancy growth in Calgary. It projects that the city’s office vacancy rates will continue to increase over the next two years, reaching a whopping 30% by the end of 2021.
However, Calgary has many more offices per capita than numerous other Canadian cities.
While other cities of similar size have approximately 2-3 million square feet of office space per 100,000 people, Calgary has about five million. At the moment, it has 17 empty office buildings.
More office space per capita is what makes Calgary stand out in terms of vacancy rates. That is why it’s likely to see them increase further as the CRE market adapts to the changes brought about by the pandemic.
Although the unprecedented numbers are high, experts believe Alberta will lead Canada in economic growth, both in 2021 and 2022.
Naheed Nenshi, the Mayor of Calgary, shares the same optimism, stating that the office vacancy rates are set to improve.
In April, the city council approved the Greater Downtown Plan, a long-term strategy for fixing the vacancy problem in the downtown core. The plan is a $200-million investment coming from city reserves and federal infrastructure funding, set to create more mixed-use space and attract more private CRE investors.
CRE activities have been picking up recently, as investors see many opportunities for redeveloping or repurposing the downtown core. The high office vacancy rates might improve sooner than anyone expects.
Calgary’s record-high vacancy rate might seem alarming right now, but the tide might already be turning. The vacancy growth will be short-lasting as Alberta’s economy is set to improve. Not to mention that forward-thinking CRE investors who see the city’s huge potential are already taking steps to utilize empty office buildings.