High hopes

Calgary's commercial sector still among nation's busiest markets

With cranes a seemingly permanent fixture of Calgary's growing skyline, it's of little surprise the city's commercial market has been one of Canada's busiest.

According to a report from commercial real estate services and investment firm CBRE Ltd., demand for office space in Calgary and Toronto has contributed to a decline in the national office vacancy rate, which fell for the first time in two years during the third quarter of 2014.

"The Canadian economy may not be firing on all cylinders, but the Toronto and Calgary office markets turned out quite a performance last quarter," said CBRE chairman John O'Bryan. "It was a bit of a have or have-not summer. The standout office markets were exactly that, while other areas were fairly quiet. One assumes that strong office leasing activity in core markets will translate into more widespread office demand in the year ahead."

The main contributor to Calgary's drop in vacancy came, once again, from the energy market, with the city's downtown seeing 368,052 square feet of net leasing activity in the third quarter, second only to Toronto's 650,560 square feet.

As of the third quarter, the overall vacancy rate in Calgary's downtown office market stood at 9.1 per cent. Toronto had the tightest market in the country with a vacancy rate of just 5.3 per cent.

Continued demand for downtown commercial space is evident in the amount of new office construction in the area. In addition to 841,000 square feet of office space already being added to the core this year, another 3.8 million square feet is under construction, including the 760,000 square-foot TELUS Sky tower and 2.4-million-square-foot Brookfield Place development.

As for how much renters are shelling out to obtain space in Calgary's thriving office market, the average Class A rent in the downtown core is $33.40 per square foot, outpacing second-place Vancouver ($33.15 per square foot) and third-place Toronto ($27.31 per square foot).

Outside of downtown, Calgary's suburban office market ranked as one of Canada's most active, with 1.8 million square feet of space under construction. Calgary's suburbs have also seen the highest level of leasing activity in all of Canada, with more than 400,000 square feet of year-to-date absorption – nearly double the next busiest market.

Also active has been Calgary's industrial market, where year-to-date absorption ranked behind only Vancouver for top spot in the country, with more three million square feet of industrial space leased. As in the commercial sectors, Calgary's industrial market is set to welcome more space to the market, with 4.4 million square feet of space currently under construction.

"Calgary is seen by all, as the place to live, work and play in Western Canada," said Jay de Nance, director of tenant services for Fairfield Commercial Real Estate Inc. "The Calgary region continues to grow and develop at an unprecedented rate. Due to Calgary's continued economic prosperity, higher-than-average rental rates, low vacancy and high absorption levels are expected to continue through 2015.

"Commercial development projects across the greater Calgary region are driving the local economy and will continue to place the city at the forefront of the national stage."