The oil and gas sector’s infamous plummet roughly eight years ago had a dire impact on Calgary's downtown core -- as reflected by both poor absorption of office units and tepid renter demand for city centre condos —but there are strong indicators that change is afoot.
According to Greg Kwong, CBRE's Managing Director for the Prairies, while downtown Calgary’s office vacancy rate rose to 34% by the end of 2021—an all-time high, he says—tech companies have recently begun leasing space in the city’s core. Although still early, Kwong believes more companies will follow suit.
“It’s certainly a burgeoning sector we’re watching," says Kwong. “If you look at overall occupancy for downtown Calgary, I’d suggest that less than 5% is occupied by true tech, and tech-related, companies, but having said that, four years ago it was less than 2%, so the growth is quite good.”
As long as the oil and gas sector is in the doldrums, though, office vacancies downtown will remain elevated. Of the 44 million square feet of office space in downtown Calgary, just over a third is vacant.
However, that gives leasers significant leverage.
“With any type of trend, when you see new companies come into town, everybody says, 'Hey, maybe it's not so bad. Maybe downtown is a good place to be,'" he said. “So we totally expect more of the vacant space to be leased by tech companies over the next few years.”
Could Emergence of Tech Boost Calgary's Condo Investment?
In addition to Google’s recent absorption of city centre office space, other notable tech firms like Symend and Benevity have also opened offices. That bodes well for condo investors in the city’s core, who have struggled in recent years to fill vacancies, because people generally prefer living close to work. If this emergent trend holds, there could be significant demand for rentals in the near future.
The city’s residential market, on the other hand, has enjoyed huge growth in the last year, which Natasha Phipps, an investment specialist and realtor with CIR Realty, attributes to out-of-province investors’ outsized presence. Condo inventory has decreased to about four months from five, but demand is strongest in the preconstruction high-rise market. Phipps added that demand wouldn’t be as strong if it weren’t for a salient fundamental rebounding.
“Industry is coming to Calgary. The city was heavily weighted into the energy sector but it’s nice to see diversification in the local economy because it’s the only thing that will protect the city and province from falling victim to another boom and bust cycle,” she said.
The Calgary Cancer Centre, billed as an internationally recognized treatment and research facility, is slated to open late next year, and while it will be in the city’s northwest instead of downtown, it’s yet more evidence that headwinds are turning into tailwinds.
Scarce Supply of Detached Boosts Condo Segment
Moreover, Calgary’s detached housing market was white-hot in 2021, with 17,038 sales that were just shy of a record set in 2005 and 40% above the long-term averages, according to the Calgary Real Estate Board. With only 898 units of inventory remaining in December, the real estate board noted that there have never been fewer detached homes available for sale. While those houses are affordable compared to Canada’s three largest cities, scarce supply has sparked bidding wars and made condos all the more appealing.
It just so happens that a lot of those condos are located downtown.
“You can see improvement starting to happen in the city centre, where there’s positive appreciation for condo apartments,” Phipps said. “There are different economic sectors downtown. There are new businesses, especially in a sector like tech, and a lot of individuals want to live close to where they work. They want that type of lifestyle, and any new business will help with the absorption of condo inventory we’ve had sitting downtown for years now.”
