Market analysts project the next office construction cycle should be underway in Calgary sometime around 2032. In the interim, they foresee vacancy rates continuing to climb over the next two years as the last buildings of the most recent development wave are completed and added to available inventory.
Colliers International pegs Calgary’s downtown office vacancy rate at 20.5 per cent as of March 31, 2016 — an increase of more than 2 per cent since the beginning of the year. Nearly 3 million square feet of downtown office space has emptied out in the 12 months since March 2015, contributing to the 8.8 million square feet of inventory that is now vacant, while another 2.3 million square feet of space is still under construction. In addition, some companies are holding empty space that hasn’t been released back to the market.
“We estimate the inclusion of ghost vacancy would increase the vacancy rate by two per cent to five per cent, equating to 22 to 25 per cent today and 26 to 29 per cent with the inclusion of new office developments in 2018,” Colliers’ recently released Q1 overview and market forecast states. “It is clear the 11 million square feet of available space, including new developments under construction, will take time to absorb.”
Using the assumption that approximately 690,000 square feet of office space would be absorbed in years when the economy is stable or in an upswing, analysts calculate it will take more than nine years for the vacancy rate to drop to the 8 to 10 per cent range considered to be a balanced market. Based on the same numbers, there is 16-year supply of space before more new construction would be necessary.
“The actual length of time for any such recovery could happen quicker or be more drawn out based upon many factors that contribute to demand by companies in the downtown office market,” the market report states. Ultimately, it reiterates, the health of the downtown Calgary office market is “inextricably linked to the price of oil and gas.”