All indicators are showing that the office real estate market in Calgary has found new life, as the market experienced a fourth consecutive quarter of positive absorption with 185,892 sq. ft absorbed in Downtown Calgary alone and 314,442 sq. ft absorbed in the city overall.
Overall vacancy is now at 23.9% -- down 2.2% since Q3 2021 -- and vacancy in Downtown Calgary is now at 27.5% -- down 2.4% since Q3 2021.
"A re-invigorated leasing market coupled with continued strength in the energy sector has brought Calgary’s office sector back on the positive side of market trends in Q3," says Avison Young in their Q3 Calgary Office Market Report. "Vacancy rates have begun to flatten and trend downwards as more employees returned to the office at the beginning of the Fall season."
Regarding the connection with the energy sector, Avison Young notes that significant renewal dates are on the horizon and that those decisions could impact the office sector and shape its direction in the near-future, whether it's in the direction of straightforward renewals, modernizations, or relocations.
"On the one side, high energy prices are providing more certainty with regards to hiring, office space, and long-term planning," they said. "On the other, strategic decisions have leaned more towards organizational efficiencies and sharing profits, over capital investment and expansion."
Where this potential movement is not happening, however, is in Class-AA office spaces in Downtown Calgary. Overall vacancy in Class-AA offices is now at 15.0%, down 2.8% since Q3 2021, and the increasing "flight to quality" trend is expected to make such office space more and more scarce. Avison Young found that as a result of that dwindling supply and stable demand, rental rates have jumped by 21% in the past year.
According to their latest statistics, no Class-AA space is currently under construction, either. In fact, besides 217,079 sq. ft of Class-A space under construction in the Suburban Northwest area of Calgary, there is no office space of any kind under construction.
This is, of course, not surprising, as Calgary is still trying to fill the huge amounts of office space it accumulated between 2013 and 2018 (or get rid of them by converting them into residential buildings). "Optimistic estimates could see up to 2M sq. ft of conversion of older, under-utilized office stock," Avison Young says.
Overall, Avison Young still believes in the advantage Alberta has when it comes to cost of living -- rising in Alberta, but still lower compared to some other provinces. "Calgary continues to be one of the main benefactors of these economic and social strains and can act as a pressure release valve for the over-heated markets in the country," they said.
"Meanwhile, a favorable commodity environment is helping energy companies feel more secure in their office planning decisions, while government support and funding has allowed non-traditional industries the ability to find a foothold in the market."
The outlook is looking positive. Some may even say it's looking rosy.