Calgary Office Market Shows Strongest Recovery Since 2014 as Energy Companies Seek More Space

Calgary’s downtown office market is showing renewed signs of activity, with energy companies looking for additional space as major projects and improving investment prospects strengthen confidence in the city’s economy.

The latest market data points to the strongest quarterly performance Calgary’s office sector has recorded since the 2014 oil price crash. Businesses occupied hundreds of thousands of square feet of office space during the latest quarter, reversing years of weak demand and high vacancy rates across downtown.

Several traditional oil and gas companies are currently looking for additional floors in downtown office buildings, according to commercial real estate representatives. Some companies are expanding their existing presence, while others are maintaining their current office footprints as expectations for future energy investment improve.

The renewed demand is being linked in part to major energy infrastructure projects that could generate significant investment and employment across Alberta and British Columbia.

The proposed Pacific Link pipeline, which has been identified as a project of national interest, and the expansion of LNG Canada are among the developments contributing to the improved outlook.

Together, the projects represent tens of billions of dollars in potential investment and could support thousands of jobs across the two provinces. Increased export capacity could also encourage additional investment in oil and gas production, creating demand for engineering, consulting, construction and other professional services.

Calgary Chamber of Commerce CEO Deborah Yedlin said the potential scale of new investment could eventually bring business activity closer to levels seen in the mid 2000s.

She said stronger investment would create favourable conditions for the office market, particularly as companies involved in energy projects expand their operations.

Recent leasing activity suggests that the improvement is already beginning to appear.

Companies occupied nearly 325,000 square feet of downtown office space during the latest quarter, while another 240,000 square feet was absorbed in Calgary’s suburban market.

Energy companies were an important part of the activity, although the increase was not limited to the oil and gas sector. Financial firms, educational organizations, consultants and engineering companies also contributed to demand.

Commercial real estate officials said the effects of major energy projects extend well beyond the companies directly involved in production. As large infrastructure developments move forward, demand can spread across contractors, engineers, consultants, construction firms and other businesses supporting those projects.

The proposed pipeline would provide additional transportation capacity for Alberta crude, while the second phase of LNG Canada’s project is expected to significantly increase liquefied natural gas exports from the British Columbia coast.

The additional export capacity could provide producers with greater access to international markets and potentially encourage further investment in Alberta’s energy sector.

Calgary Economic Development CEO Brad Parry said the improving office market is another indication that business confidence in the city is strengthening.

He said companies increasingly view Calgary as an attractive location for doing business and pointed to growing expectations surrounding the city’s future economic opportunities.

Despite the recent improvement, Calgary still faces one of the highest downtown office vacancy rates among major Canadian cities.

More than 28 per cent of downtown office space remains vacant, according to the latest figures. Edmonton follows with a vacancy rate of about 21 per cent, while Winnipeg, Montreal and Ottawa also continue to record elevated levels of empty office space.

Calgary has a particularly large office inventory for a city of its size, with more than 67 million square feet of office space across the metropolitan area. Roughly two thirds of that space is located downtown.

The city’s total office inventory is slightly larger than Vancouver’s and more than twice the amount available in Edmonton. Toronto remains far ahead of other Canadian cities with approximately 172 million square feet, followed by Montreal.

While the overall vacancy rate remains high, demand is becoming more concentrated in premium office buildings.

Vacancy in Calgary’s highest quality office properties is around 12.5 per cent, considerably below the broader downtown rate. These buildings are often preferred by major corporations looking for modern facilities and high quality downtown locations.

The stronger demand for premium space suggests that the recovery is not simply a matter of filling vacant offices. Companies are increasingly looking for higher quality locations as they expand or reorganize their operations.

The energy industry remains central to Calgary’s economy, but business leaders say the city is also becoming more diversified.

Yedlin pointed to the growth of Calgary’s technology workforce as another important development. Technology, professional services and other industries have expanded their presence in the city, creating additional sources of office demand beyond traditional energy companies.

That diversification could help Calgary reduce its dependence on the energy sector over time, although oil and gas is expected to remain a major part of the local economy.

For downtown Calgary, the latest figures offer a more positive picture after years of uncertainty following the 2014 oil downturn. The city still has significant vacant office space to absorb, but the combination of new energy investment, employment growth and stronger demand for premium buildings is creating signs of a gradual recovery.

If major energy projects proceed as expected and investment continues to increase, Calgary’s office market could see further gains in the coming years. For now, the latest leasing figures indicate that companies are once again beginning to plan for growth and seek more space in the city’s downtown core.

Courtesy: calgaryherald