Signs of stabilization offer glimmer of hope for struggling downtown office market

The vibrancy of Calgary's downtown office market is a good indicator of the health of the city's economy, and since the oil price collapse that started in the latter half of 2014, they've both been struggling.

Fewer jobs in the core has meant reduced need for office space among the big oil and gas companies in the city's central business district. This has impacted all Calgarians and is expected to continue to do so for years to come.

For many real estate experts, one thing is certain: there won't be any new skyscrapers built in Calgary for quite a while. This was reflected in the results of a 2017 study of Calgary's downtown office market by the Conference Board of Canada for Calgary Economic Development.

"Even with persistently positive net absorptions (from 550,000 to 700,000 square feet), the downtown office vacancy rate is expected to remain above 20 per cent until 2023 and in double-digits until 2032," the board's report reads.

"The Calgary office market, particularly the downtown portion, appears to be shifting towards stability." -Todd Throndson, Avison Young

"After 2019, when Telus Sky is completed, the Conference Board does not expect a major office tower to be built in downtown Calgary until 2029."

However, a glimmer of hope emerged from the first quarter of this year. According to a market report by Avison Young, downtown office space registered its third consecutive quarter of positive absorption – a feat that has not occurred since the first three quarters of 2012.

"The Calgary office market, particularly the downtown portion, appears to be shifting towards stability," said Todd Throndson, Avison Young principal and managing director of the company's Calgary office.

"First-quarter 2019, while slow in activity, still resulted in 28,000 square feet of positive absorption in the downtown market. When combined with the previous two positive quarters, the downtown office market has recorded 548,000 square feet of positive absorption over the last nine months.

"However, the forecasts are unclear as to what the rest of 2019 will bring. Confidence levels remain uncertain and activity could remain slow for at least another quarter."

Absorption is expected to be flat to negative through this year.

Avison Young's report says downtown office vacancy sat at 25.3 per cent in the first quarter, up from 24.7 per cent in fourth quarter of 2018, but down from 25.6 per cent one year ago.