There has been a small positive uptick in downtown Calgary’s office vacancies, but it falls far short of being the light at the end of the tunnel.
According to a recent report by commercial real estate company JLL, the fourth quarter of 2018 saw a gain of 39,324 sq. ft. in leased office space in downtown, with vacancies in the area hovering at over 10.2 million sq. ft., representing a vacancy rate of 23.5% — up from 14.1% in 2015.
New lease activity is now centred around higher-quality office spaces, as tenants are vacating lower B-class and C-class spaces and taking advantage of premium A-class office spaces offered at discounted rates.
As a result, property owners of B-class and C-class office spaces are “being forced to find new and creative ways to stay relevant within the market,” and this has resulted in “increased competition between building owners to offer new and useful amenities and find unique ways to attract new tenants into their buildings.”
Over in Calgary’s suburban markets, the vacancy is also high at 18.3%, with nearly a million sq. ft. of office space becoming vacant throughout 2018.
Additionally, there has been a ripple effect from Calgary’s overall property tax assessment values falling by $5 billion from 2018 to 2019, including a 31% drop in the value of the office buildings in the city.
“Suburban businesses, in anticipation of rising tax bills, are making economic decisions accordingly. With an unpredictable future tax burden for tenants, landlords are attempting to lower operating costs through green initiatives and improved operating efficiency,” continued the report.
“The property tax shift from the Downtown Core adds another element into the leasing competition between the Downtown and suburbs as rivalling rental rates and now-rising taxes in the suburbs are levelling the leasing race.”