More than 10 million square feet of Calgary's downtown office space sits empty, about a quarter of the total stock, and recent deals consolidating oil sands assets are likely to drive further staff layoffs and could exacerbate an already high vacancy rate.
Recent merger and acquisition activity could add to the sublease stock – with a Colliers International Group Inc. report pointing to Canadian Natural Resources Ltd. acquiring Royal Dutch Shell PLC oil sands assets, and Cenovus Energy Inc. buying assets from ConocoPhillips Co.
However, there are some early signs of an improved market in the first quarter of this year, said the Calgary report released Wednesday. With oil trading above $50 (U.S.) a barrel, some believe the worst of the economic slump in the city has passed. There have been more showings and leasing activity. The list of notable transactions includes Canadian Imperial Bank of Commerce recently taking up 60,000 square feet, or two storeys, in the striking 58-storey Bow building – offered by Cenovus for sublease.
Counting dozens of head offices, Calgary is third in Canada – after way-out-front Toronto, and then Montreal – when it comes to total office-space inventory.
But after the 2 1/2-year global slump in crude prices, Calgary's downtown office vacancy rate stands at more than 25 per cent. There is 10.67 million square feet of office space available for rent or sublease. The Colliers report notes that two office towers – Brookfield Place and Telus Sky, planned when oil prices were higher – will be completed within the next two years, adding another 1.8 million square feet to the downtown inventory.
"Both of these new towers still have significant available office space for lease, and if not leased by building completion, the downtown vacancy rate will continue to increase and, accordingly, put further downward pressure on rental rates."
Already, Cenovus has delayed its office expansion into Brookfield Place to early 2019, about a year later than it had originally planned, in recognition that the company's "space requirements changed dramatically with the downturn of the past two years."
Calgary Mayor Naheed Nenshi and Calgary Economic Development have said an announcement on the opening of a prominent Silicon Valley company office is coming soon, and there are also hopes that agri-food and renewable-energy firms will set up shop. However, downtown Calgary's fortunes are intertwined with the oil and gas sector – which accounts for about 70 per cent of downtown office occupancy.
The report said it's difficult to foresee more than 10 million square feet of now-empty offices being occupied in the near future when the downtown Calgary office market historically averages less than a million square feet of absorption per year.
"If the energy sector were to grow at the levels experienced in the years 2010 to 2012, over which time in excess of 6.5 million square feet of office space was absorbed in downtown Calgary, we could see the office market recover within the next three to five years – as unlikely as this may appear in today's environment."
Colliers also noted there's now higher demand for smaller blocks of space – those less than 5,000 square feet. But many offices are configured for larger blocks of space, above 20,000 square feet, that landlords are reluctant to subdivide.
Want to interact with other informed Canadians and Globe journalists? Join our exclusive Globe and Mail subscribers Facebook group