A Boom in Office Towers in Calgary
By LINDA BAKER
Published: January 20, 2009
CALGARY, Alberta — When the Bow, an office tower under construction in downtown Calgary, is completed in 2011, the 58-story building will be the tallest structure in Canada west of Toronto.
Designed by the London architecture firm Foster & Partners, the Bow is to have a crescent-shaped exterior, three floors of indoor green spaces for employees to enjoy and passive solar orientation to reduce energy use. Its cost is about 1 billion Canadian dollars, equal to about $800 million.
“It’s a fascinating building,” said Alan Boras, a spokesman for the Bow’s future tenant, EnCana, one of Canada’s largest oil and gas corporations. “We hope it will be a place Calgarians can be proud of.”
The Bow is one of eight office towers under construction in downtown Calgary, a city of one million people and the headquarters for Canada’s fossil fuel industry. Prompted by a rise in oil prices in recent years as well as expanded production from Alberta’s enormous oil sands reserves, the office boom also reflects this city’s growing attention to bold architecture and environmentally friendly construction.
But even as the Calgary skyline is being transformed, the global credit crisis and the implosion in oil prices are beginning to take a toll. Mr. Boras said that EnCana would drill about 40 percent fewer wells this year but that the cutbacks would not affect its plans to move into the Bow, which is named after the river bordering downtown.
The project is not without problems, however. In November, the Bow’s owner, H & R REIT, said it was having trouble securing construction financing, although work had not been halted.
None of the office projects have been put on hold, said Greg Kwong, regional managing director for the Calgary office of CB Richard Ellis. Nevertheless, the pace of leasing is down, and developers are worried about a glut in the marketplace as the new crop of towers is completed. Vacancy rates in existing buildings are up, although only to 5.2 percent, a rate that most other cities would envy, but still considerably higher than the level of about two years ago.
Fossil fuel companies and concerns that do business with them occupy 75 percent of the office space downtown, said R. Scott Hutcheson, chief executive of Aspen Properties, a local real estate company. “When that industry tanks, it has a domino effect,” he said.
Aspen is developing Palliser South, a 300,000-square-foot cantilevered office complex due to open next summer. So far, it is only 33 percent leased, Mr. Hutcheson said. “We are crossing our fingers in this environment,” he said.
A couple of years ago, the mood in this city, about 80 miles east of the Rocky Mountains, was almost giddy. From 2003 to 2007, as oil prices escalated, downtown office rents rose by two and a half times, to 39.60 Canadian dollars a square foot, from 15.25. In 2008, rates dipped to 38.20 Canadian dollars, about $30.56 at current exchange rates. Office vacancy rates went from just under 12 percent in 2005 to less than 1 percent in 2007, Mr. Kwong said. “The market absolutely rocked,” he said.
Developers paid attention. “We looked at oil prices, saw them going up and had lived in Calgary long enough to realize that means we are going to need space,” said Randy Magnussen, senior vice president for Bentall Real Estate Services.
Bentall recently completed the Livingston Place development, the first building in Calgary to be built on speculation in 20 years, at a cost of about $115 million. The project, which has twin towers covering about 800,000 square feet, is leased to Pengrowth Energy Trust, Marsh Canada Ltd. and Mercer Human Resource Consulting Ltd.
The expanded output of Alberta’s oil sands reserves, considered second in capacity only to Saudi Arabian reserves although harder to extract, also fed the surge in construction, Mr. Kwong said. From 1998 to 2008, oil sands production doubled, to about one million barrels a year, said David McColl, an economist with the Canadian Energy Research Institute.
The eight new office towers, covering 5.5 million square feet and representing an increase of almost 15 percent in downtown capacity, suggest a new design sensibility for this city, often described as a “cow town” because of the Calgary Stampede, considered the world’s largest annual rodeo.
Existing buildings are boxy and conventional, said Richard White, an architect and former official of the Downtown Association. Now developers are creating structures that “express the synthesis of the angularity of the mountains and ice fields with the flatness of the big blue prairie sky,” he said.
In an effort to upgrade city architecture, the City Council voted in December to hire the renowned Spanish architect Santiago Calatrava to design two pedestrian bridges over the Bow.
Green construction is another distinguishing feature of the office towers. Environmental consciousness began here a few years ago, when Calgary became the first major Canadian city to adopt a requirement that public buildings meet the standards established by Leadership in Energy and Environmental Design.
These measures are administered by the Canadian Green Building Council, a sister organization of the United States Green Building Council, which created LEED ratings. The city’s sustainable building efforts are being imitated in the private sector.
Bentall Real Estate Services is developing Jamieson Place, a 38-story tower aiming for LEED silver certification. Future tenants include ARC Resources, a fossil fuel trust. “Environmental stewardship is critical to our employees,” said Terry Gill, vice president of corporate resources for ARC Resources.
Early leasing for Jamieson Place took a year and was completed in December 2007, Mr. Magnussen said. Today, landlords are not quite so lucky. Eighth Avenue Place, a blocklong landmark development still under construction, has no tenants at all. The LEED gold-rated building, featuring a roof that resembles a “sculptured mountain peak,” with plantings that collect and filter rainwater, is being built on speculation, said John Smith, vice president of 20Vic, the managing developer. “It was a question of anticipation of demand in the marketplace,” he said.
Then there is the Bow, which is fully leased to EnCana but does not have all of its financing. Larry Froom, H & R’s chief financial officer, said the company hoped to resolve the issue by the end of March. If that does not happen, H & R may sell assets, Mr. Froom said.
In the energy industry, there are indications of a slowdown. In contrast to previous years, oil sands growth will be “practically zero” from 2009 to 2013, Mr. McColl said. The end of the industry’s frantic growth is a factor as office rents have been reduced and sublease space has increased to 33 percent of all vacancies in 2008, up from 20 percent in 2007, Mr. Kwong said.
Still, the impact of the downturn is not expected to be as severe as others in city history, he said. After oil prices collapsed in 1991, vacancy rates in Calgary increased from about 7 percent to more than 20 percent in a single year.
Today, oil sands plants, which take much longer to build than conventional oil operations, help stabilize the market, even though new projects have been delayed, Mr. Kwong said.
By 2011, Calgary’s downtown footprint may be big, bold and green. One thing will not have changed. “There has been a certain amount of diversification in Calgary over the past 10 years,” Mr. Hutcheson said. But the city, he said, still runs on oil and gas.
A version of this article appeared in print on January 21, 2009, on page B5 of the New York edition.