Calgary Downtown Office Market
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Research & Forecast Report CALGARY Accelerating success. DOWNTOWN OFFICE MARKET First Quarter 2019 Nexen Building and the Bow to be occupied by CNOOC. Sublease availability for spaces under 5,000 square feet Market Overview Summary Statistics While the net effect of this move by CNOOC remains remains scarce and most of these options comprise of Downtown Office Market Q4 2018 Q1 2019 Trend Calgary’s downtown office market realized positive unclear, the Nexen Building continues to be excluded from chalkline shared scenarios or larger spaces which could OFFICE INVENTORY 44,214,667 44,214,667 absorption in the first quarter of 2019, resulting in the vacant office space inventory. If added to vacant inventory, be formally demised. In scenarios where the sublandlord vacancy rate decreasing to 25.23 percent. The trend of the vacancy rate could increase by 1.36 percent. offers demising options less than 5,000 square feet, NET ABSORPTION (13,056) 451,442 positive absorption is expected to continue throughout the subtenants often face higher rental rates in order to offset VACANCY RATE year, however this will likely be comprised of numerous Market Trends the sublandlords’ cost associated with formally demising 26.45% 25.23% the larger space. While some sublandlords will consider AVERAGE ASKING NET RENT smaller transactions as the majority of companies 20,000 $14.00 $14.00 square feet and greater with lease expiries in 2019 and Given the current economic climate downtown, landlords chalkline deals to expedite rent recovery, these scenarios (‘A’ CLASS BUILDINGS) 2020 have already completed transactions. There are continue to compete over a small pool of prospective are accompanied by numerous challenges. For subtenants, AVERAGE ADDITIONAL RENT (‘A’ CLASS BUILDINGS) $20.00 $20.00 only two companies that have not transacted in 2019 and tenants by offering aggressive base rents and lucrative confidentiality can be a major concern given there may be sixteen companies that have not transacted for 2020. inducements. This phenomenon is pervasive in all classes multiple subtenants sharing a floor with no formal Absorption Summary of buildings, thus contributing to the flight to quality trend, separation, while sublandlords risk limiting their recovery Downtown Office Market Q4 2018 Q1 2019 Trend Recent activity from Cenovus and CNOOC International resulting in a consistent decrease in vacancy in Class on a portion of vacant space as a shared option is less AA 68,558 549,291 Limited (formerly Nexen) has drastically affected AA/A buildings and correspondingly, increased vacancy appealing to subtenants. absorption and Calgary’s downtown office market as a in Class B/C buildings. Suburban companies continue to A (17,198) 13,806 whole. By Q3 2019, Cenovus will be fully moved into migrate downtown to take advantage of these market trends. Since the beginning of 2017 approximately B (80,764) (45,231) Brookfield Place, where they will occupy 784,000 square Devon Energy Corporation 700,000 square feet of downtown office space has been feet. This move will leave Cenovus with approximately The U.S. based company has announced its intention to pursue a C 16,348 (66,424) 984,000 square feet of excess office space on the leased or subleased by companies previously located separation from its Canadian assets. This could have a significant impact on Calgary’s downtown vacancy rate, particularly as it sublease market, with the space located in The Bow outside of the downtown core. TOTAL (13,056) 451,442 relates to the Devon Tower. (491,000), Brookfield Place (240,000), Suncor Energy Centre – East Tower (140,000), Rocky Mountain Plaza The market continues to exhibit a high demand for small (42,000), Telephone Building (37,000) and Oddfellows office space vacancies, resulting in landlords offering Building (34,000). flexible demising options and constructing show suites Total Inventory & Occupied Space less than 5,000 square feet. Currently there are 49 Calgary Downtown Oce After vacating approximately 600,000 square feet in the existing show suites that are under 5,000 square feet or Nexen Building, CNOOC has almost fully moved their can be demised to be 5,000 square feet or less, with 24 50 operations to The Bow; subleasing 290,000 square feet additional show suites proposed or currently under from Cenovus and 110,000 square feet from Encana. This construction. Show suites that are finished to a higher relocation alone has resulted in approximately 400,000 standard and are located in higher quality buildings are 45 square feet of positive absorption. The absorption and leasing at a quicker pace than their counterparts. Q3 2014 OCCUPIED SPACE vacancy rate presented this quarter consider both the 37,333,600 SF Q3 2009 OCCUPIED SPACE 40 31,123,546 SF Q1 2019 Headlease & Sublease Comparison OCCUPIED SPACE Q1 2007 33,067,710 SF BUILDING CLASS TOTAL INVENTORY HEADLEASE AVAILABILITY SUBLEASE AVAILABILITY TOTAL AVAILABILITY OCCUPIED SPACE 33,214,742 SF Q4 2018 Q1 2019 Q4 2018 Q1 2019 Q4 2018 Q1 2019 Q4 2018 % Q1 2019 % (MILLIONS) SQUARE FEET SQUARE 35 AA 16,856,813 16,444,525 1,355,434 1,111,113 2,017,381 1,696,965 3,372,813 20.01% 2,808,078 17.08% A 13,738,290 14,150,578 2,079,598 2,035,436 878,678 868,911 2,958,276 21.53% 2,904,347 20.52% 30 Forecast per Year B 8,290,285 8,193,756 3,353,815 3,291,327 143,482 169,009 3,497,297 42.19% 3,460,336 42.45% *Absorption: 500,000 SF C 5,329,279 5,425,808 1,668,596 1,792,111 198,984 182,085 1,867,580 35.04% 1,974,196 36.39% 25 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total 44,214,667 44,214,667 8,457,441 8,229,987 3,238,525 2,916,970 11,695,966 26.45% 11,146,957 25.23% Source: CMN Calgary Inc. 2019 Total Absorption: 451,442 Source: Colliers Research Q1 2019 OCCUPIED SPACE TOTAL INVENTORY 1 Research & Forecast Report | First Quarter 2019 | Calgary Downtown | Colliers International 2 Research & Forecast Report | First Quarter 2019 | Calgary Downtown | Colliers International The availability of sublease office space is primarily has been met with mixed reviews by the industry and Notable Transactions comprised of large energy firms, with four in particular investors alike. holding over 50 percent of the available sublease space. Company Building Address Approx. Square Footage The challenges facing crude oil are the ongoing headwinds Going forward, as has been the case for the past five for natural gas producers, who despite some reprieve this 1.* Golder Associates Ltd. Stephen Avenue Place 700 - 2 Street SW 60,000 years, companies that are 10,000 square feet and larger winter, have endured several years of persistently low will draw the most attention from landlords and realized prices (which at times have been near or below sublandlords and will continue to be able to negotiate the zero). As with crude oil, significant infrastructure changes most favourable terms. are required within the western Canadian energy complex 2.* NorthRiver Midstream Inc. Bankers Hall West Tower 888 - 3 Street SW 43,000 to help alleviate these issues. Economic Outlook Political uncertainties stemming from what will likely be 3. Bluestar Engineering Ltd. Fifth & Fifth 605 - 5 Avenue SW 34,000 The first quarter of 2019 proved to be no more resilient an eventful election year for Canadians and Albertans than previous quarters with respect to the economic alike has caused many companies located within the hardships that the Alberta economy continues to face. downtown core to take a wait and see approach regarding 4.* Lawson Lundell LLP Brookfield Place 225 - 6 Avenue SW 27,000 The western Canadian oil and gas industry continues to significant decisions. This sentiment affects the commercial struggle due to pervasive egress constraints, unsupportive real estate industry as some companies remain hesitant capital markets and onerous regulatory developments. about signing long-term leases. 5.* IQ Office Suite Holdings Inc. Telus Sky 685 Centre Street SW 25,000 These challenges are impacting both crude oil and natural gas producers, who continue to suffer from historically As it pertains to Calgary’s downtown office space market, low realized prices relative to global benchmarks. vacancy levels are anticipated to remain high for the foreseeable future, with the biggest catalysts for change 6.* Carya Society of Calgary Atrium I 839 - 5 Avenue SW 20,000 Mandatory crude oil production cuts announced by the being significant commodity price recovery and greater Alberta Government this fall came into effect in January, political/regulatory certainty. Though we continue to see which has significantly improved price differentials (most non-energy and non-traditional market participants 7.* Westleaf Inc. Watermark Tower 530 - 8 Avenue SW 14,000 notably for heavy oil). While this decision has had a consider the downtown core as a real estate solution, positive immediate effect on realized pricing, government market diversification would need to accelerate in order to *Transactions that Colliers was involved in. interventionism through forced production curtailment materially alter current market dynamics. Composition of Headlease Vacancy New Office Development, Annual Absorption & Vacancy Rates 50 AS AT MARCH 31ST 2019 AA 1,111,113 SF 6.76% A 2,035,436 SF 14.38% B 3,291,327 SF 40.38% C 1,792,111 SF 33.03% 3000000 30 26.45% 2500000 Q4 2018 40 25.10% 24.40% 25.23% 2000000 24.80% Q1 2019 25 Q4 2016 1500000 AS AT APRIL 30TH 2015 AA 237,118 SF 1.66% 1000000 20 30 AS AT JANUARY 1ST 2013 A 858,280 SF 6.46% 18.11% RATE VACANCY AA 53,948