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Research & Forecast Report CALGARY DOWNTOWN OFFICE MARKET Q4 2015
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Page 1: CALGARY DOWNTOWN OFFICE MARKET€¦ · office market does not work on predictable averages when it comes to market demand and absorption. Previous oil price declines have typically

Research & Forecast Report

CALGARYDOWNTOWN OFFICE MARKET Q4 2015

Page 2: CALGARY DOWNTOWN OFFICE MARKET€¦ · office market does not work on predictable averages when it comes to market demand and absorption. Previous oil price declines have typically

Research & Forecast Report | Q4 2015 | Calgary / Downtown | Colliers International1

Calgary Market Overview

The economic woes faced by the energy industry in 2015 have been well documented, as have the impact these changes have had on the Calgary and Alberta economies. The decline in energy commodity prices has resulted in substantial layoffs in the sector and a corresponding steep increase in the downtown vacancy rate. In addition, significant cuts to capital spending, the uncertainty surrounding regulatory and government change, and the continuing issues with access to foreign markets have all contributed to one of the most challenging economic environments experienced in this city. As expected, these new realities have had a profound impact on the occupiers of office space in downtown Calgary and will increasingly have negative implications for owners of office buildings in this market. Leasing activity was very limited in 2015 which created a very competitive environment for landlords. Accordingly, there has been a significant drop in rental rates and increased tenant inducements in all classes of office space.

SUPPLY & DEMAND

2015 will be remembered for the massive contraction in occupied space in the downtown office market. The year ended with more than 2.74 million sq. ft. of negative absorption. This record level of contraction eclipsed the previous low water mark set in 2013 by more than one million sq. ft. The overall vacancy rate in the downtown office

market soared to 18.11% by year end, up from 13.93% the previous quarter and 8.52% at the end of 2014, a dramatic shift from a balanced market to a market clearly favouring tenants.

Total vacancy in the Class AA market continued to rise throughout 2015 ending the year at 12.99%, up from 9.87% at the end of the previous quarter and more than doubling from the 6.1% posted at the end of 2014. Close to 1.4 million sq. ft. of new office space was added to the Class AA market this past quarter with the inclusion of Calgary City Centre (811,046 sq. ft.) and Eau Claire Tower (578,677 sq. ft.), of which only 160,000 sq. ft. remains vacant on a head lease basis, however it is not yet known as to how much of this space will come back to the market in the form of sublease availability in 2016.

* Transactions Colliers was involved in.

Breakdown of Downtown Calgary Office Vacancy By Class HEADLEASE & SUBLEASE COMPARISON

BUILDING CLASS TOTAL INVENTORY HEADLEASE AVAILABILITY SUBLEASE AVAILABILITY TOTAL AVAILABILITY

Q3 2015 Q4 2015 Q3 2015 Q4 2015 Q3 2015 Q4 2015 Q3 2015 % Q4 2015 %

AA 14,275,125 15,664,848 283,659 514,361 1,124,607 1,521,127 1,408,266 9.87% 2,035,488 12.99%

A 13,293,328 13,293,328 831,059 1,086,946 818,145 1,020,528 1,649,204 12.41% 2,107,474 15.85%

B 8,653,227 8,653,227 950,656 1,799,718 926,765 703,974 1,877,421 21.70% 2,503,692 28.93%

C 4,225,800 4,225,800 531,862 772,259 167,681 158,864 699,543 16.55% 931,123 22.03%

Total 40,447,480 41,837,203 2,597,236 4,173,284 3,037,198 3,404,493 5,634,434 13.93% 7,577,777 18.11%

Q3 2015 Absorption: -557,243 Sq. Ft. Source: Colliers Research Q4 2015

NOTABLE TRANSACTIONS

TENANT BUILDING ADDRESS APPROX. SIZE (SF)

1. TransCanada Corporation

TransCanada Tower 450 - 1st Street SW 610,000

*2. Birchcliff Energy Ltd. Eau Claire Tower 620 - 3rd Avenue SW 81,000

*3. World Health Club Calgary Place I 330 - 5th Avenue SW 24,000

4. Shea Nerland Calnan LLP

First Canadian Centre 350 - 7th Avenue SW 25,000

5. Ikkuma Resources Corp. Fifth & Fifth 605 - 5th Avenue SW 15,000

Page 3: CALGARY DOWNTOWN OFFICE MARKET€¦ · office market does not work on predictable averages when it comes to market demand and absorption. Previous oil price declines have typically

Research & Forecast Report | Q4 2015 | Calgary / Downtown | Colliers International2

Vacancy in the Class A market increased by 7% over the previous year to 15.85% at the end of 2015. Occupied Class A space contracted by 458,300 sq. ft. in the fourth quarter, resulting in close to one million sq. ft. of negative absorption for the year. The Class B market experienced the most dramatic shift as it saw negative absorption of 626,300 sq. ft. in the fourth quarter and a total of 1,611,500 sq. ft. of negative absorption in 2015. This resulted in the Class B vacancy rate skyrocketing from 10.3% at the end of 2014 to a remarkable 28.93% by the end of 2015. Similarly, the Class C market saw its vacancy rate climb to 22.03% from 12.0% over the year as another 231,600 sq. ft. of vacancy was added to the market in the fourth quarter, bringing its year-over-year absorption to negative 422,500 sq. ft.

Summary Statistics Q4 2015 Downtown Office Market 2015 Q3 2015 Q4 Trend

Office Inventory 40,447,480 41,837,203

Net Absorption (475,554) (557,243)

Vacancy Rate 13.93% 18.11%

Average Asking Net Rent(‘A’ Class Buildings) $23.00 $20.00

Average Additional Rent(‘A’ Class Buildings) $21.83 $21.12

TOTA

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Class ‘A’ Rental Rates ($) Vacancy Rate (%)Total Vacant SpaceLEGEND:

Calgary Downtown O�ce Market Overall Vacancy Rate and Impact on Class “A” Quoted Rental Rates

$40.00

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$ 0

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Page 4: CALGARY DOWNTOWN OFFICE MARKET€¦ · office market does not work on predictable averages when it comes to market demand and absorption. Previous oil price declines have typically

Downtown Headlease and Sublease Vacancy 2008 - 2015

Q4/15

Q3/15

Q2/15

Q1/15

Q4/14

Q3/14

Q2/14

Q1/14

Q4/13

Q3/13

Q2/13

Q1/13

Q4/12

Q3/12

Q2/12

Q1/12

Q4/11

Q3/11

Q2/11

Q1/11

Q4/10

Q3/10

Q2/10

Q1/10

Q4/09

Q3/09

Q2/09

Q1/09

Q4/08

Q3/08

Q2/08

Q1/08

0

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

500,000

5,000,000

Squa

re F

eet

Sublease Vacancy Headlease Vacancy

Research & Forecast Report | Q4 2015 | Calgary / Downtown | Colliers International3

SUBLEASE / HEADLEASE BREAKDOWN

The amount of sublease space available in the downtown office market continued to increase with the addition of 370,000 sq. ft. of space since the third quarter of 2015. This trend began in the fourth quarter of 2014 and continued throughout the year resulting in over 2.1 million sq. ft. of additional sublease space entering the market by year’s end. The expectation is that this trend will continue but not to the same degree as was seen in 2015. As previously mentioned, the space committed to by tenants moving into Calgary City Centre and Eau Claire Tower may exceed the amount of space that is actually required by these tenants. Given the low or no growth environment we are currently experiencing, we expect at least some of this space to come to market in the coming months in the form of sublease space. It is clear that sublease space will continue to have a profound impact on the Calgary office market for some time to come.

Overall, the amount of head lease space available in the downtown office market spiked by approximately 1.5 million sq. ft. in the last quarter of 2015 and 2.05 million sq. ft. over the course of the year. While the headlease availability increases in the Class AA and A markets were due primarily to the addition of two new towers and the pending relocation of the remaining 308,000 sq. ft. of Imperial Oil space to the suburbs, respectively, the Class B market saw an increase of 750,000 sq. ft. of available headlease space over the last quarter alone. The coming two years will be relatively active with lease rollovers so we anticipate that tenant’s “right-sizing” their space will continue, albeit through giving space back to the landlords in exchange for term extension on the space they intend to continue using. Indications are that landlords increasingly recognize the challenges being faced by their tenants and they will be responsive to them by seeking and providing solutions that work for both parties.

Page 5: CALGARY DOWNTOWN OFFICE MARKET€¦ · office market does not work on predictable averages when it comes to market demand and absorption. Previous oil price declines have typically

Research & Forecast Report | Q4 2015 | Calgary / Downtown | Colliers International4

LOOKING FORWARD

Total occupancy costs will increasingly be a focus of tenants in this market going forward. While discounts on net lease rates abound through the sublease market, we are seeing landlords becoming increasingly responsive to the new reality by managing operating cost escalations and contesting real estate taxes. Not only will we continue to see a lowering of rental rates across the board, we can expect to see landlord’s look for operating efficiencies and other forms of relief that can be passed on to their tenants. One clear example of this is an emerging trend re-evaluating their parking rates, which now represents approximately $3.00/sq. ft. of office space leased by a typical tenant, in response to the new supply and demand dynamics.

The downtown Calgary office market is inextricably tied to the fortunes of the Canadian and global energy industry. The mantra of “lower for longer”

Abso

rptio

n (S

q Ft

)

-3,000,000

-2,500,000

-2,000,000

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-1,000,000

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2,000,000

2,500,000

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'16'15'14'13'12'11'10'09'08'07'06'05'04'03'02'01'00'99'98'97'96

DOWNTOWN CALGARY HISTORICAL ABSORPTION VS WTI

Actual Absorption

2015 Absorption: -2,741,481 SF

$145.31

$107.95

$30.28

$10.86

Oil Price (WTI)

YTD $32+/-

(12/10/1998)

(12/23/2008)

(07/03/2008)

(06/20/2014)

that we continue to hear regarding energy prices certainly rings true for the downtown office market as well. Looking at the market’s long-term rolling average of demand/absorption of approximately 650,000 sq. ft. per year, we can extrapolate that we currently have up to a six year supply of office space before we return to what is considered a balanced market. However, the downtown Calgary office market does not work on predictable averages when it comes to market demand and absorption. Previous oil price declines have typically been reversed by changes in global supply and demand fundamentals as well as geopolitical factors. Over the long term, oil prices will rise and the downtown Calgary commercial real estate market will recover. Years of growth in our city’s core far outweigh periods of contraction, and the price of oil over time follows an upward trend. As you can see in the chart below, each downturn is followed by significant growth, and we can anticipate a positive recovery.

Page 6: CALGARY DOWNTOWN OFFICE MARKET€¦ · office market does not work on predictable averages when it comes to market demand and absorption. Previous oil price declines have typically

Research & Forecast Report | Q4 2015 | Calgary / Downtown | Colliers International5

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RESIDENTIAL

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FUTURE +15 WALKWAY

+ 15 WALKWAY

COLLIERS INTERNATIONAL900-, 335 - 8TH AVE SWCALGARY, AB T2P 1C0

T +1 403 266 5544F +1 403 265 6495

www.colliers.com/calgary

WAM OWNED SITE

WEXFORD / OXFORDOWNERSHIP SITE

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4

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3

Under Construction707 Fifth Street SW

4

Under ConstructionTelus Sky Tower

5

ProposedPalliser Square

6

ProposedCalgary City Centre

Phase II

7

ProposedOxford Tower

8

ProposedFirst Canadian Centre

Phase II

9

ProposedBrookfield Place

Phase II

10

Proposed8th Avenue &

Centre Street SW

1112

Proposed608 7th Street

13

Proposed Century Gardens

Office Tower

14

ProposedThe Bow Professional

Building

15

ProposedPBA Development

Site

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2 1

21

CALGARY CITY

CENTRE OFFICETOWER

CALGARY CITY

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ProposedBarron Building

16

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P

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Page 7: CALGARY DOWNTOWN OFFICE MARKET€¦ · office market does not work on predictable averages when it comes to market demand and absorption. Previous oil price declines have typically

Research & Forecast Report | Q4 2015 | Calgary / Downtown | Colliers International6

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6 S

TR

EET

SW

7 S

TR

EET

SW

6 AVENUE SW

5 AVENUE SW

8 AVENUE SW

4 AVENUE SW

3 AVENUE SW

9 AVENUE SW

8 S

TR

EET

SW

8 S

TR

EET

SW

8 ST SW STATION

7 ST SW STATION

6 ST SW STATION

4 ST SW STATION

3 ST SW STATION

1 ST SW STATION

CENTRE ST SW STATION

CITY HALL STATION

CITY HALL STATION

8 S

TR

EET

SW

9 S

TR

EET

SW

13 AVENUE SW

12 AVENUE SW

11 AVENUE SW

10 AVENUE SW

10

ST

REE

T S

W

CEN

TR

E ST

REE

T

1 S

TR

EET

SW

2 S

TR

EET

SW

STEPHEN AVENUE STEPHEN AVENUE

4 AVENUE SW

5 AVENUE SW

4 S

TREE

T S

W

4 S

TREE

T S

W

3 S

TR

EET

SW

3 S

TR

EET

SW

CEN

TR

E ST

REE

T

1 S

TR

EET

SW

2 S

TR

EET

SW

5 S

TR

EET

SW

RIVERFRONT AVE SW

BA

RC

LAY M

ALL

BA

RC

LAY P

ARA

DE

EAU CLAIRE AVENUE SW

2 AVENUE SW

1 AVENUE SW

DAQING AVENUE SW2 AVENUE SW 2 AVENUE SW

9 AVENUE SE9 AVENUE SW

9 S

TR

EET

SW

9 AVENUE SW

10

ST

REE

T S

W

8 AVENUE SW

6 AVENUE SW

5 AVENUE SW

OLY

MPI

C W

AY S

E

13 AVENUE SE

12 AVENUE SE

LIGHT RAIL TRANSIT

LIG

HT R

AIL

TRA

NSI

T

LIGHT RAIL TRANSITLIGHT RAIL TRANSITLIGHT RAIL TRANSIT

N.W

. LRT BR

IDG

E

PEACE BRIDGE

HILLHURST BRIDGE

CEN

TR

E ST

REE

T B

RID

GE

LAN

GEV

IN B

RID

GE

4 AVE

FLY

OVE

R

MEMORIAL DRIVE NE

EDMONTON TR SE

FLYO

VER HEN

RY K

ROEG

ER B

RIDGE

LIG

HT

RA

IL T

RA

NSI

T

MEREDITH ROAD NE

MARSH ROAD NE

4 S

TREE

T N

E

1 AVENUE NE

4 S

TR

EET

UN

DER

PASS

WESTTOWER

EIGHTH AVENUE PLACE

EASTTOWER

RES

IDEN

CES

HOTEL

CALGARY CITY

CENTRE OFFICETOWER

BROOKFIELD PLACE

PHASE II

(POTENTIAL)

WESTTOWER

INTE

RNATI

ON

AL

HO

TEL

707 - 5 Street

Place 10East Tower

(under construction)

Place 10West Tower(Potential)

707 - 5th Street

MAcCOSHAMPLACE

P

9

TELUS SKY TOWER

BROOKFIELD PLACEPHASE I

BOW VALLEYCOLLEGESOUTH CAMPUS

NEW OFFICE CONDO

DEV

BOW PROFESSIONAL

CENTRE

BANKERSHALL WEST

TOWER BANKERSHALL EAST

TOWER

CENTRIUMPLACE

BANKERSCOURT

PENN WESTPLAZA

EAST TOWER

POTENTIALPALLISER SQUARE

WEST

LIVINGSTONPLACEWEST

FUTU

RE

DEV

ELO

PM

ENT

POTENTIAL PBA

DEVELOPMENTSITE

LEGEND

CALGARY DOWNTOWN MAP

UNDER CONSTRUCTION

FUTURE/POTENTIAL CONSTRUCTION SITE

COMMERCIAL

RESIDENTIAL

COVERED SURFACE PARKING

FUTURE +15 WALKWAY

+ 15 WALKWAY

COLLIERS INTERNATIONAL900-, 335 - 8TH AVE SWCALGARY, AB T2P 1C0

T +1 403 266 5544F +1 403 265 6495

www.colliers.com/calgary

WAM OWNED SITE

WEXFORD / OXFORDOWNERSHIP SITE

BENTALL KENNEDY OWNERSHIP SITE

CLASS LEGEND

PETEXBLDG

C

615 3rd AVE

SW

DO

MIN

ION

CEN

TRE

FIRSTALBERTA

PLACE

WESTERNCANADIAN

PLACE SOUTH

LIFEPLAZA

FIVE TENFIFTH BLDG

520 5TH AVE

HANOVERPLACE

B

THE CORE (DOWNTOWN RETAIL CORRIDOR)

DEVONIAN GARDENS4TH LEVEL

PETEXBLDG

520 5TH AVE

A

DOMETOWER

PALLISERSQUARE SOUTH

THE CORE (DOWNTOWN RETAIL CORRIDOR)

DEVONIAN GARDENS4TH LEVEL

INTE

RNATI

ON

AL

HO

TEL

AA

BANKERSHALL WEST

TOWER BANKERSHALL EAST

TOWER

PENN WESTPLAZA

EAST TOWER

LIVINGSTONPLACEWEST

ProposedThe Bow - South

4

CompletedCalgary City Centre

4

3

5POTENTIAL

Century Gardens Tower

POTENTIAL608

DEVEL

BARRON BLDG

POTENTIAL OXFORD TOWERDEVELOPMENT

POTENTIAL FIRST

CANADIANCENTREPHASE II

POTENTIAL BROOKFIELD

PLACE

PHASE II

THE BOWSOUTHBLOCK

(POTENTIAL)

POTENTIALPALLISER SQUARE

WEST

POTENTIALPALLISER SQUARE

EAST

POTENTIAL8TH AVENUE& CENTRE ST

SW

RES

IDEN

CES

HOTEL

14

13

8

16

15

10

11

12

6

7

9

BOW PROFESSIONAL

CENTRE

1

CompletedEau Claire Tower

Under Construction

Brookfield PlacePhase I

3

Under Construction707 Fifth Street SW

4

Under ConstructionTelus Sky Tower

5

ProposedPalliser Square

6

ProposedCalgary City Centre

Phase II

7

ProposedOxford Tower

8

ProposedFirst Canadian Centre

Phase II

9

ProposedBrookfield Place

Phase II

10

Proposed8th Avenue &

Centre Street SW

1112

Proposed608 7th Street

13

Proposed Century Gardens

Office Tower

14

ProposedThe Bow Professional

Building

15

ProposedPBA Development

Site

17

2 1

21

CALGARY CITY

CENTRE OFFICETOWER

CALGARY CITY

CENTRE OFFICETOWER

ProposedBarron Building

16

17

P

PP

P

P

P

P

P P

P PP

P

P

P

P

P

P

P

P

P

P P

P

P

P

PP

P

PP

P

P

P

P

P

Page 8: CALGARY DOWNTOWN OFFICE MARKET€¦ · office market does not work on predictable averages when it comes to market demand and absorption. Previous oil price declines have typically

502 offices in 67 countries on 6 continentsUnited States: 140 Canada: 31 Latin America: 24 Asia Pacific: 199 EMEA: 108

$2.3billion in annual revenue

1.7billion square feet under management

16,300professionals and staff

Copyright © 2015 Colliers International.

The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

About Colliers International Group Inc.Colliers International Group Inc. is a global leader in commercial real estate services, with more than 16,300 professionals operating out of 502 offices in 67 countries. Colliers International delivers a full range of services to real estate occupiers, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and insightful research. In 2014 the firm handled $97 billion in total transaction value for 84,600 leases and sales. Colliers manages more than 1.7 billion square feet of commercial properties.

Colliers International Group Inc. generates more than US$2.3 billion in annual revenues. With significant insider ownership and an experienced management team, Colliers International has a long-term track record of creating value and superior returns for shareholders – previously under the ownership of FirstService, and as of June 2015, continuously as an independently owned company. The common shares of Colliers International Group Inc. trade on the NASDAQ under the symbol “CIGI” and on the Toronto Stock Exchange under the symbol “CIG”.

collierscanada.com

MARKET CONTACT:

Joe Binfet | Managing Director | [email protected] | +1 403 298 0402

OFFICE TEAM:

Jim Rea | Executive VP / Partner [email protected] | +1 403 215 7250

Randy Fennessey | President / Partner [email protected] | +1 403 571 8762

Doug May | Senior VP / [email protected] | +1 403 215 7254

Warren Hedges | Senior VP / [email protected] | +1 403 298 0411

Aly Lalani | Senior Vice President / [email protected] | +1 403 298 0410

Kevin McGillis | Vice [email protected] | +1 403 571 8758

David Harvey | Vice President / [email protected] | +1 403 215 7258

Sharma Christie | Vice President / [email protected] | +1 403 215 9864

Dan Lannon | Senior Vice President / [email protected] | +1 403 215 9865

Jeremy Berman | Associate Vice President [email protected] | +1 403 571 8826

Todd Suttcliffe | Associate Vice President [email protected] | +1 403 298 0414

Leigh Kirnbauer | Associate [email protected] | +1 403 298 0408

Derek Wiens | Senior Associate [email protected] | +1 403 298 0415

Craig Hulsman | Associate [email protected] | +1 403 571 8829

Lucas Beck | Associate [email protected] | +1 403 215 9866

Brett Toner | Associate [email protected] | +1 403 298 0406

Steve Berman | [email protected] | +1 403 298 0426

Johnathan Rojas | Leasing [email protected] | +1 403 571 8828

Chantelle Mathews | Client Project [email protected] +1 403 538 2520

Colliers International | Calgary900, 335 - 8th Avenue S.W.Calgary, AB | Canada+1 403 266 5544


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