Once regarded as the tightest commercial market in the country, things in downtown Calgary are beginning to change for prospective tenants.
According to a report from CBRE Limited, the first quarter of 2013 saw absorption in Calgary drop substantially, with 260,281 sq. ft. of sublet space returning to the office market. As a result, sublet space now accounts for 43.3 per cent of downtown vacant space, up from 8.7 per cent at this time last year.
Calgary saw negative 522,707 sq. ft. of absorption this quarter in Calgary overall, as the vacancy rate climbed both downtown and in the suburbs. Nationally, the percentage of vacant space available for sublet in downtown markets rose from 13.6 per cent in the first quarter of 2012 to 20.1 per cent this quarter, with the Calgary market responsible for the bulk of the increase.
“Due to the potential for rapid growth in Calgary, it is common for tenants to lease large amounts of space and sublet it once they have a better idea of their actual space requirements,” stated the report. “The rise in sublet space reflects the fact that some tenants are tempering growth expectations slightly and many plan to use their space more efficiently going forward, however, sublet space in Calgary can be pulled off the market as quickly as it is made available.”
Due to the increase in vacancy in Calgary, Toronto can now claim the second lowest downtown vacancy rate in Canada. Toronto’s downtown vacancy rate fell to quarter-over-quarter to 4.7 per cent and is second to Vancouver at 4.1 per cent, while Calgary’s downtown vacancy rate rose 70 basis points to 5.7 per cent quarterover- quarter. This reflects the broader trend in which Eastern Canadian markets are narrowing the vacancy rate gap with markets in Western Canada.
Average Class A rent for downtown space in Calgary was $40.53 per sq. ft., down from $40.58 in the last quarter, but higher than the $35.51 average rent in the first quarter of 2012. Currently there is 1.66 million sq. ft. of office space under construction in Calgary.
“Office construction is currently the defining feature of the Canadian commercial real estate market,” said John O’Bryan, chairman of CBRE Limited. “Strong preleasing tells us that this space is warranted; however, it appears that the current pipeline is now adequate to satisfy demand.”
Calgary’s industrial market registered 790,194 sq. ft. of positive net absorption during the first quarter, which more than relieved the 433,513 sq. ft. of new supply delivered to the market.