Office vacancies down for quarter
Office vacancy rates across the country dropped during the third quarter, led by Calgary where oil prices are leading to record demand and a critical shortage of vacant space.
“Demand continues to outpace supply in Calgary where an unprecedented office leasing boom could see space virtually dry up in the downtown core,” said a report from Royal LePage Commercial Inc.
Calgary’s vacancy rate is down to 5.3%, a massive drop from a year ago when it was 10.7%. Last quarter the vacancy rate was 7.1%. National vacancy rates at the end of the quarter were 8.9%, down from 11% a year ago.
The crunch in Calgary has led to reports of changes in annual leasing rates in the city rising $10 per square foot over just the past six months, says Chris Anderson, vice-president and general manager of Royal LePage Commercial Calgary.
Mr. Anderson said it is impossible to find 100,000 square feet of contiguous space in downtown Calgary, the amount you would likely need for a company with 150 employees.
“What is happening is companies are now being forced into the Calgary suburbs, they can’t wait for new buildings to be constructed,” said Mr. Anderson.
There are six development projects in the downtown now confirmed and they are expected to add 1.2 millions square feet of office space to the core, but only four of them have broken ground. At the very earliest, the space would come to market by 2007.
A couple of major projects, like EnCana Corp. building a new head office and vacating 1.5 million square feet around town, will help with supply but it will not come soon enough to ease the space crunch. LePage did not compile formal rental rates for the market and had only anecdotal evidence that prices are rising.
Dean Newman, president of LNR-Cresa Partners which represents commercial tenants, said the tide has turned in Calgary. “This is a landlord’s market,” said Mr. Newman. “ There are a flurry of buildings under construction which is the talk of the town.”
“Our advice to tenants is to renew early,” said Mr. Newman, adding gross rental rents midyear had reached $36.64 per square foot per year, up from $31.53 a year earlier.
Paul Finkbeiner, the president of GWL Realty Advisors which counts a 50% interest in Bankers Hall among its holdings, said his leasing representatives tell him rents are up 40% from a year ago.
The situation should ease as new supply comes on line but some developers are waiting to see if projects under construction end up being fully leased,said Mr. Finkbeiner. LePage also said yesterday the rest of the country is continuing to improve, albeit not as fast as the Calgary market. “ We are seeing slow sustained growth in demand, we are seeing some steady growth in office expansion,” said Paul Morse, vicepresident of LePage.
Financial Post
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