Startups Emerging to Help Revive Calgary

Kendra Pinder of Cresa talks about the impact of the downturn on Calgary's office vacancy rate and what it will take to rebound.

What is Cresa’s data telling us about the state of the downtown office market in Calgary?

Pinder: Vacancy rate is one data point that can give us a good grasp as to the overall health of certain sectors of the economy, and with continued vacancy above 25 per cent for the past year, we’re not just in a slump but have been digging to find the bottom quarter after quarter.

Absorption tells another story – to put it simply, positive absorption is how much vacant space is leased, which indicates there’s corporate growth and office space expansion. And on the flip side, negative absorptions means more vacant space has come back to market, meaning more empty desks.

Since 2013, Calgary’s downtown absorption rate has been trending negative, meaning there’s less demand for office space and more space is being vacated and put on the market. It seems like the days of large and mid-sized energy firms experiencing rapid growth and requiring expansion space are gone and, sadly, our junior energy firms have shrunk or have disappeared altogether.

With all this negativity and uncertainty, the downtown market data doesn’t tell the full story about the Calgary economy. In fact, there’s a positive story to share as Calgary’s startups are emerging and in many cases are hiring talent and increasing their demand on the smaller pockets of vacancy, particularly in the Beltline and fringe markets.

The boutique retail sector in the new developments in the trendier areas seem to be thriving. However, many of the big box stores continue to sit vacant as traditional or multinational retailers are doing away with the brick and mortar now that technology took its place.

And speaking of technology, we’re seeing positive growth in this sector and hope to see more companies fill the voids.

Is there any end in sight to the elevated vacancy rate the market has experienced for the past couple of years?

Pinder: Don’t we all wish we had a crystal ball to predict a market turnaround. This isn’t a news story you haven’t covered. Given the current political and financial challenges Alberta is facing, it’s likely going to take a change in government policy and renewed confidence in Alberta that will ultimately see more capital investment and job creation to swing the pendulum the other way.

There’s a lot of talk about diversification to solve Calgary’s economic woes. But let’s be honest, we’re still an oil-and-gas town so unless we see a pipeline built and have access to international markets, I don’t see vacancy declining to meaningful levels in the near future.

What’s it going to take to return the market to more balanced conditions and how long will that take?

Pinder:I’ve touched on policy and investment, so I’ll just simply state the facts on vacancy and how to achieve a balanced market. We have close to 44 million square feet of office space in our downtown market alone. If we consider that every employee, on average, uses 275 to 300 square feet of space – which not only factors in their desk area, but their share of meeting space, kitchens and common areas – Calgary’s 11 million square feet of empty space could accommodate 35,000 to 40,000 workers. That’s a significant number.

But, to get to a balanced market where vacancy is around 10 per cent, we need to find jobs for well over 20,000 people. We all know this won’t happen overnight. Even if the pendulum swings quickly the other way we likely won’t see vacancy decline in the near term as most of the large to mid-sized firms – who will likely be the first to hire – have upwards of 10 to 20 per cent of vacant work spaces, so it will take some time to see positive absorption before all the empty seats are filled.

Are there any trends you are seeing in leasing for the downtown office market?

Pinder:No matter how good or bad the market, the number one trend we see is the flight to quality, which is why many of our older Class B and C buildings on the periphery of the core have limited tenants. Companies on the move are now able to be in higher quality, modern buildings with  access to more amenities, all the while reducing their overall occupancy costs.

A close second is designing the future office space that incorporates technology and accommodates a variety of work styles and demographics in the workplace. When Calgary’s downtown office space was in high demand and rents were at an all-time high, companies were figuring out ways to free up space and providing employees a more flexible schedule or work environment. Technology was certainly a game changer and continues to be, but the trend of having a more mobile workforce has in some cases created more vacancy.

Ready-to-move-in, furnished office space is in demand but that also came in the form of sublease space, and much of the move-in-ready space is already leased. Some landlords are listening to the needs of corporate Calgary and have made investments into their buildings by adding amenities such as fitness centres, bike lockers and tenant lounges.

If we’re just looking at the financial structure of a lease deal, what we’re seeing a lot of is tenants getting large inducements to make moving to new space more attractive. This can be longer periods of free rent, sizable tenant allowances to renovate or build out new space, as well as allowing more flexibility on term and square footage in a lease than what we saw in previous years.

What’s your sense of the mood of downtown Calgary businesses and professionals?

Pinder: This is a tough one as it really depends on who you’re talking to these days. Speaking with someone in the oil and gas sector, there’s a sense of uncertainty and frustration. Yet talking to employees working in areas such as legal, accounting or engineering, they all seem to be weathering the downturn and their business or area of practice seem to be stabilized.

As a real estate professional walking through empty floors of office space, you really see just how many lives have been impacted. It leaves a sad and depressed feeling walking through an empty building downtown but on the flip side, Calgary is still full of energetic, entrepreneurial people, collaborating and growing other industries.

Their attitude is positive and upbeat which is a great thing to see right now. Apart from the negativity, I do think Calgarians still remain hopeful.

This article first appeared in Calgary's Business. Read the article here.