Retail, downtown and suburban office, industrial – all play by different rules
By Derek Sankey
If you’re affected in any way by the commercial real estate sector in Calgary, it probably depends largely on the type and location of space as to whether you can expect to upgrade into higher quality at a bargain, renegotiate your lease, even find space in some areas of the market or take your pick.
In downtown Calgary, it’s been a busy few months as tenants look to upgrade into a growing abundance of office space. “A lot of companies are using this environment as an opportunity to upgrade their space – whether that means quality or moving from small floor-plate space to large floor-plate space – those are the kinds of things driving a lot of business decisions today,” says Todd Throndson, managing director of Avison Young.
“There have been a lot of big deals done in the marketplace,” he says. That trend isn’t expected to last into the latter part of the year – most big deals have already been done – but tenants can expect a surge of new space from projects such as Eighth Avenue Place and The Bow to add new options into 2011 and beyond. “I think it’s going to stagnate a little going into the last half of this year, but what has really been interesting has been to watch the level of high-quality tenants go after high-quality space,” says Throndson.
Rents downtown have dropped 50 per cent from their peak during the boom, so a lot of businesses are locking in now with the anticipation that after the market absorbs the new space expected to come available over the next two years, rents will creep back up.
“A tenant can get into a much better building, get an allowance that pays for all or most of their costs for improving their space and they’re set for the next 10 or 15 years,” says Throndson, adding landlords are now offering $60-80 per square foot for things like renovations in many buildings.
“There will be a lot of pressure on markets going down next year, but right now it’s flat and next year it will probably be a lot more aggressive,” he says. Once the two major projects hit the market – Eight Avenue Place in 2011 and then Encana’s The Bow office tower – places will get backfilled and there is already a lot of sub-lease space available. Current vacancy rates hover around 15 per cent in the downtown core, depending on the type and location of space, and that number could swell close to 20 per cent within a few years.
Greg Kwong, regional managing director for CB Richard Ellis (CBRE) in Calgary, believes some developers may be wishing they had crystal balls just a couple of years ago.
“When (the developers of Eighth Avenue Place) made the decision to actually go ahead with it and start developing it, the market was actually quite robust, but by the time they said OK and committed the money, six months into it the market crashed,” says Kwong. “I’ll bet you if they could have shut it off, they would have.”
It’s quite a different story in the suburban office market.
“Suburban (office space) has been a lot quieter than downtown,” explains Throndson. “A lot of the vacancies that are out there have stayed vacant.”
There are mostly smaller pockets available, since large engineering companies have already largely locked into suburban office space commitments – the real drivers of the suburban market. Rental rates in this sector have gone down and incentives have gone up, but there’s still not a lot of big deals being done in the suburbs.
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