Record vacancy rate looms over city’s downtown
Annalise Klingbeil and Chris Varcoe spoke to Adam Legge, president and CEO of the Calgary Chamber of Commerce, for this edited version of The Confluence podcast. Download episode 9 of The Confluence podcast for the entire interview.
Q The vacancy rate in Calgary’s downtown offices has gone from 3.7 per cent to nearly 30 per cent in the span of a few years amid the recession. Can you walk us through what exactly is happening downtown?
A The scary part is it’s near 30 per cent but there’s still lots of unused space not included in that 30 per cent. What we saw is that Calgary built a real estate program downtown around $100 oil. … That plan fell to pieces around 2014. So, as companies laid off people, they cancelled growth plans, they cancelled investments, they really scaled back on the real estate. You add to that the fact we had a couple buildings in progress at the time … you’re just left with this huge amount of space.
Q How bad is it?
A If you picture the downtown, one in four buildings is completely empty, more than that.
Q Does this mean that we’re just not going to be building new office towers in the next decade or so?
A There’s probably very little incentive for new office product to be built in the downtown for, I would hazard, between one and two decades … I wouldn’t be surprised to see anywhere between 10 and 20 years to get us back to kind of an eight to 10 per cent vacancy rate.
Q Why is this a problem, specifically for businesses across the city, not just downtown?
A What we saw this year was that the value of the downtown properties dropped and therefore the amount of tax that was collected on those properties dropped, so it left a gap between what the city needs and what the values were worth. … The first round was to say we’ll take that value and distribute it around the rest of the business properties in the city, everything outside of the downtown. … We saw many of those businesses in the outlying areas facing impacts and increases of anywhere between five, 10 up to 200 per cent increase in their property taxes. City hall came along and said we’re going to mitigate that … make it so no one pays more than five per cent. That’s a one-year solution and we’ve got many, many years of this shortfall facing us.
Q What does this mean for the tax burden going forward for business owners who are not in the downtown, when it comes to the 2018 bill arriving in the mail?
A I think they’ll see that if they faced a hypothetical 200 per cent increase (this year), next year it could be a 500 per cent increase. From a two-year
standpoint, it might be 300 per cent year over year. … I think you’re going to see businesses that could not have made it (this year without the five per cent cap), they definitely won’t be able to make it when it comes to paying this year’s real costs and next year’s real cost.
Q It sounds like we’re kicking the can down the road here.
A It was a one-year solution that got us past 2017 but there is no plan in place for 2018, 2019. Until we find a way for other parts of the city’s values to catch up to the loss of the downtown, and given how expensive an office building is versus a suburban residence, it’s going to take a long time. City hall doesn’t have a plan to my knowledge. They may be working on it, there may be ideas in different election platforms, but you can only go into reserves so often and pull out $45-, $50-, $75-, $100-million dollars to bridge that gap. At some point, the reserves run dry.
Q Do you think council would have had the appetite to pull $45 million out of reserves (to cap non-residential property tax increases at a maximum of five per cent) had there not been a looming election? A Would it have been done outside an election year? I would
hope so. No one knows for sure. We’ll know next year, because we’ll be in year one of a four-year mandate. I think they’ll need to do that again to cushion the blow because it will be bigger next year than it was this year, and there really is no other Plan B. … Businesses have looked me in the eye and said if I didn’t have this five per cent cap, I’d be out of business.
Q Are you a believer that we’re going to become, or that we can become, the technology hub for the west — the Silicon Valley North?
A Do I think we can attract a lot of companies out of Silicon Valley to Calgary? No, I don’t think we can. The reality is we have a great, early, burgeoning group of technology people, they’re doing absolutely amazing things. … We’re still pretty small and we don’t have a lot of the things that you need for a tech place to flourish. … A lot of the space those companies want are not towers. They want to be in kind of cool, warehouse-y, industrial, edgy type spaces. They don’t want to ride up to the 42nd floor of a tower. You can listen to The Confluence podcast on the Calgary Herald website or subscribe on iTunes, Google Play, Stitcher, Pocket Casts, Overcast or wherever you get your podcasts from.