Office building boom for Calgary
Surpasses Toronto as biggest development market in Canada
CALGARY – Calgary has surpassed Toronto as the biggest office development market in the country, says a new report released Thursday.
Avison Young’s 2014 Canada, U.S. Forecast, which covers the office, retail, industrial and investment markets in 36 Canadian and U.S. metropolitan regions, said nearly 27 million square feet of new office space (48 per cent pre-leased) has been announced or is under construction across Canada, equating to five per cent of the existing inventory.
Calgary and Toronto are the dominant development markets in the country, combining for nearly 17 million square feet or 62 per cent of the overall construction projects.
“Calgary surpassed Toronto as the biggest development market in Canada” with almost 8.9 million square feet (only 38 per cent pre-leased) – “an exceedingly high proportion of the city’s existing inventory” at 13 per cent “and more than twice the national average,” said Avison Young’s report.
Close behind is Toronto with 7.8 million square feet (48 per cent pre-leased), equating to five per cent of the city’s existing inventory, it said.
“Demand for new construction has been driven by confidence, both from the energy sector and how they see the future (with) lots of projects on the go and potential for pipeline activity and by the real estate community and how they see the future (with) lots of demand by larger companies. Both of these industries see a strong economy for a long time,” said Todd Throndson, managing director of the Avison Young office in Calgary.
“Each of the new buildings have decided to proceed based on pre-leasing. Developers have committed to building the office towers based on landing a lead tenant . . . There is a confidence that if you build it, they will come. This is backed up by both Eighth Avenue Place succeeding with their second tower after moving forward on a spec basis (in 2009) and Place 10 (Centron in 2011) succeeding after moving forward on a spec basis.”
The report said the optimistic outlook within Alberta’s energy sector should translate into continued demand for quality space by major oil firms in Calgary as the current construction boom will result in 21 new buildings being erected.
According to Avison Young, the overall office vacancy rate in Calgary was 7.8 per cent at the end of 2013, up from 6.6 per cent in the third quarter of that year and from 4.48 per cent at the end of 2012.
The downtown office market had a 6.1 per cent vacancy rate for year-end 2013, up from five per cent in the third quarter and 2.98 per cent at the end of 2012.
Throndson said the other big influence on this construction growth is due to the challenges companies faced back in 2006 and 2007. Vacancy was very low like today and companies couldn’t manage their real estate properly.
“They were forced into several buildings, rather than all being together, and ended up paying big rents in B and C class buildings. This resulted in many growth companies in 2010, 2011 and 2012 making decisions to take more space than they needed to protect their long-term growth plans,” explained Throndson.
“This resulted in inflated demand causing real vacancy to drop down to low levels and rates to rise. Given where rents went in 2006, 2007 and 2008 for lower quality buildings, many companies made the decision it was better to pay slightly more rent to be in a new building with everyone together and to have their growth space accommodated under their control.”