Calgary's space race
by Angela Anderson
Misc | Vol. 24 No. 43 | October 26, 2006
While Alberta is currently experiencing the strongest period of economic growth ever registered by any province in the country—a growth of 43% over the last three years, making the province’s annual growth on par with China—the lack of space is leaving little choice for businesses wanting to move their offices to the city.
GVA Devencore Worldwide, a commercial real estate research firm with offices across the globe released its fall 2006 report analyzing and comparing the markets of each of Canada’s major cities, and is warning that the business community must prepare strategies for the long term.
While major players in the commercial development industry have addressed the market, with numerous projects on the go around the city, the space is getting snapped up fast by tenants, mainly before projects enter the market.
There are a number of large building projects nearing completion throughout the city by major developers Bentall, Opus Building Corp., Tonko Realty Advisors and Homburg-Centron, which will collectively bring approximately 1.7 million sq. ft. to the market by their completion dates, which range from mid-2007 to early 2008.
And Opus announced last week that they would begin construction of Opus Campus this spring, which will be one of Calgary’s largest suburban office developments—about 800,000 sq. ft., but that project will not be complete until 2010. Opus Campus will be located on Horton Rd. SW at the corner of Macleod Trail and Heritage Drive and will include three buildings of 12, 10 and six storeys.
The report by Devencore says that in the meantime, the projects under construction are being fully pre-leased within weeks of the commencement of their marketing periods.
Jacquelyn Laflanne, a leasing assistant from Opus confirmed that the Opus 8 project, scheduled to be completed in the summer of 2007, is sold out except for about 10,000 sq. ft., which is already completely pre-leased.
It’s the same story with the Centrium development by Tonko Realty Advisors, located downtown and totaling 225,000 sq. ft. According to the developer’s web site inventory, it is completely leased and scheduled for occupation early next year.
There are a number of other major projects being considered for the downtown core, however, it will still be some time before they have an impact on the current space shortage, the report notes.
In the second quarter of 2003, approximately 11.5% of commercial space in the city was available for lease or sublet and since then, vacancy rates have steadily, and dramatically, decreased.
Six months ago, office vacancy rates stood at 1%. Today, that number has dropped to 0.1%, meaning only 38,000 sq. ft. is currently available for lease or sublet.
Calgary has by far the lowest office space vacancy rate in the country and in North America.
This is compared with Ottawa’s vacancy rate of 3%, Vancouver’s vacancy rate of 4.2%, Toronto’s rate of 7.5% and Montreal’s rate of 8.9%.
The severe shortage of space is having an impact on companies trying to reduce cost and boost profitability, says the report by Devencore.
“Faced with five to ten year lease commitments, tenants need to ensure that their lease agreements are flexible and allow for future expansion,” the company said in its Spotlight on Vancouver and Calgary Markets, also in the Fall 2006 report.
However, the squeeze for space is not supporting that, and leaving companies scrambling to find space.
“For the time being, tenants seeking space in the Calgary area will find more extensive options in the outlying areas of the city, where some space still exists and rents are lower than those currently being demanded in the downtown district,” the report says.
Over the short term, Devencore warns tenants who wish to locate or expand in downtown Calgary will find their options extremely limited.
The report concludes, “Tenants and their real estate representatives will have to be very alert to any new opportunities and prepare strategies for the long term.”
—Angela Anderson is a Calgary Real Estate News reporter.