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BOMA CALGARY NEWS SUMMER 2009 Page 1 - Offi ce Market Forecasts: True or False? | Page 3 - President’s Message | Page 4 - A Refreshing Outlook for Transportation Page 5 - Conservative Territory | Page 6 - Who’s Who in the Zoo! | Page 8 - Money Down the Drain | Page 10 - David Parker Offi ce Market Forecasts: True or False? By Sandy McNair and Kevin Antaya, Altus InSite he continuing economic downturn has generated absorption that began to reverse as new supply began to many doom-and-gloom forecasts, and Canada’s ma- be completed. It should also be noted that current sublet Tjor downtown offi ce markets have not been immune levels are well below the historic average. from grim forecasts. Vancouver has seen a similar, but less dramatic, shift Recent reports of dramatic increases in the amount of from sublet rates which hovered around two per cent in sublet available space in Vancouver, Calgary and Toronto 2004, shrank to virtually zero in 2007 and now approach may not tell the whole story, and without historical con- the levels of late 2004. A lack of signifi cant new supply, text may, in fact, be misleading. SUBLET SPACE SOARING? In Calgary, the amount of sublet space across the city has increased by over 500,000 square feet since the be- ginning of the year and now stands at around 1.1 million square feet. How- ever, this is almost exactly the same amount of sublet space that was avail- able in late 2004, immediately prior to the beginning of three years of space BOMA Calgary News 1 especially in the downtown market, In Toronto, the difference is even BOMA Calgary News is a major factor in softening the im- more dramatic, with the amount of pact of reduced demand. space in the same fi ve-year period BOMA Calgary News is a co-publication of On the surface, it may seem that beginning in 2007 being equal to less BOMA Calgary and Business in Calgary. the amount of sublet in Toronto is than 25 per cent of the total space Business in Calgary rising more slowly, but Canada’s larg- added to the Toronto market during 1025, 101 - 6 Ave. SW, Calgary, AB T2P 3P4 est offi ce market has historically had the prior cyclical peak between 1988 4ELs&AX Email: [email protected] higher levels of sublet, with the rate and 1992. Web: www.businessincalgary.com over the past fi ve years ranging from This is not to say that Calgary 1.5 per cent to 2.5 per cent. Even and Toronto will be immune from BOMA Calgary with a relatively large increase since downward pressure on rents and 120, 4954 Richard Road SW, Calgary, AB T3E 6L1 the beginning of the year, sublet now an increased focus by tenants on %MAILINFO BOMACAs7EBWWWBOMACA stands at around 2.0 per cent. This reducing operating expenses in a re- 4EL s&AX is close to the historic average, but covering economy. CHAIR well below the peak of almost 3.0 What is very likely is that the new Paul Gauthier, Fujitec per cent in 2003. towers in both cities will be leased up at the expense of existing stock MEMBERS and that each market and sub-mar- Blair Carbert, Stones Carbert Waite LLP NEW SUPPLY SNAPSHOT Michael Kehoe, Fairfi eld Commercial Both Toronto and Calgary currently ket has its own story and dynamics, Miles Durrie, Calgary Herald have relatively large amounts of new with the winners and losers yet to be Carol Lewis, Calgary Herald supply underway, with a total of al- determined. Darlene Davis, Calgary Herald most 14 million square feet currently James Harvie, TELUS Convention Centre under construction (see table oppo- Altus InSite’s mission is to ac- Offi cers site). At the time many of these new celerate the differentiation of projects were announced, new supply commercial real estate offerings PRESIDENT in both markets had been moderate and services by establishing credible Guy Priddle, MBA, RPA, BLJC Facility Management and the outlook for demand was criteria and processes that identify, positive. Put into perspective, the measure, improve, recognize and re- VICE PRESIDENT/PRESIDENT-ELECT Peter MacHardy, GWL Realty Advisors Inc. amount of new supply in Calgary for ward the performance of buildings, the fi ve-year period starting in 2007 owners, managers, occupants and 2ND VICE PRESIDENT is about half of the amount that was their advisers, suppliers and service $ON&AIRGRIEVE 0ARK Bentall LP added during the prior cyclical peak providers. For more information, SECRETARY TREASURER between 1979 and 1983. please visit altusinsite.com. Tom Sullivan, GWL Realty Advisors Inc. PAST-PRESIDENT Wendy Cardell, The Cadillac Fairview Corp. Ltd. EXECUTIVE VICE-PRESIDENT NEW SUPPLY SNAPSHOT William G. R. Partridge, CAE TOTAL UNDER TOTAL Directors PRE-LEASED Chris Howard, Howco Realty Advisors CONSTRUCTION AVAILABLE Domenic Mazzocchi, 20 Vic Management Inc. AREA AREA AREA Gerry Jobagy, Hopewell Real Estate Services (sf) Glen Kitteringham, Brookfield Properties Corporation (sf) (sf) Lee Thiessen, Altus Group Michael Kehoe, Fairfield Commercial Real Estate &RED%DWARDS Servpro Cleaning TORONTO 6,431,047 4,103,552 2,327,495 The Building Owners and Managers Association of Calgary publishes BOMA Calgary News quarterly. For advertising CALGARY 7,387,240 4,385,511 3,001,729 rates and information contact Business in Calgary. Publication of advertising should not be deemed as endorsement by BOMA Calgary. The publisher reserves the right in its sole and absolute discretion to reject any advertising at any time submitted by any party. Material contained herein does not necessarily refl ect the opinion of BOMA Calgary, its members or its staff. © 2009 by BOMA Calgary. Printed in Canada. 2 BOMA Calgary News PRESIDENT’S REPORT Harbinger of Things to Come By Guy Priddle, MBA, President s we near the end of the second for Chapter 11 bankruptcy protection quarter of 2009, it’s interesting essentially as a result of their fi nancing Ato refl ect on the local, region- structure. Following a major acquisition al and global economic situations. For in 2004, GGP was carrying signifi cant much of 2008, as the United States and short-term debt that it could not ser- the rest of the world sank deeper into vice because of the illiquid nature of recession, we felt that Canada was go- the debt. It is a scenario that is eerily ing to remain largely immune to the similar to that which caused the fall of effects. That belief was much more Olympia & York – positive income gen- tangible in Alberta, and to some de- eration from high-quality properties gree remains so. will not protect against bankruptcy if It was very encouraging to hear that the debt service obligations cannot be in the internal annual reports of some met due to a lack of available cash. major companies that, in spite of the More signifi cant though is the deepening recession, they would do pending exposure that resides in the all they could to retain staff. They commercial mortgage sector. The believed that although the recession Economist refers to an estimate of will cost companies some profi t mar- Foresight Analytics, a research group, gin, preserving that margin in part by which suggests almost USD$600 bil- eliminating people was short sighted. lion of commercial mortgages will be The diffi culty in fi nding quality people maturing in the U.S. alone between to fi ll vacancies over the past three 2009 and 2011. As the residential mar- to fi ve years, again particularly in the ket suffered through an adjustment West, was being considered against the in loan-to-value ratios, so too will the potential reduction in profi ts. Com- commercial market. Combined with a panies were committing to retaining fall in prices (value), commercial prop- people through the tough economic erties are likely to face a refi nancing times, taking a longer view of their crisis that will require investors to sig- investment in human capital and not nifi cantly increase their own capital to panicking. achieve any level of refi nancing. On the face of it the commitment Financing structures and bank regu- to people over profi ts is laudable. lations are often observed to be quite That notwithstanding, it will inevita- different in Canada than in the U.S., bly get another look, particularly if a fact that has not been lost on Cana- ENERGY the recession digs deeper. At times it dians throughout the sub-prime and is comforting to look at the positive credit crises. Those regulations have ENVIRONMENT indicators: oil at +$52 and trending – arguably insulated our economy to slowly – upwards; the Canadian dollar some degree from the most severe SOLUTIONS at + USF$0.82, and trending upwards; impacts of the recession. Even so, in natural gas at – well, at least holding Canada the forecast for 2009 calls for a its own at $4; the Alberta and Sas- contraction in real GDP, a government katchewan economies projecting real defi cit of almost three per cent of GDP, GDP growth over the next couple of cuts in the central bank rate through years in spite of the recession. the fi rst half of 2010, weak exchange From an article in a recent edition rates and reduced external demand of The Economist1, though, the plight for Canadian goods and services. of General Growth Properties (GGP) If the experience of General Growth in the United States carries particular Properties is at all a harbinger of things signifi cance for our industry. GGP is the to come, we may all need to prepare second largest owner of retail malls in for an interesting period in the history the U.S.