Plunging Calgary office values linked to high oil and gas unemployment rate

The downtown core is seen from the air in Calgary on July 11, 2013. (THE CANADIAN PRESS/Jeff McIntosh)

CALGARY -- A 32 per cent decline in Calgary's downtown office building property assessment this year will likely translate into lower costs for some tenants, but don't expect much improvement in the vacancy rate, according to a commercial realtor.

Lower property taxes will bring rents down and could attract more tenants to the downtown area, said Greg Kwong, Alberta managing director for realtor CBRE.

But he added companies will have to start replacing the thousands of oil and gas industry workers laid off following the oil price crash of late 2014 before the city's downtown vacancy rate will substantially recover from its year-end 2018 level of 26.4 per cent.

"The disease is unemployment, it's not property values," he said on Friday, adding the vacancy rate could improve to about 25 per cent this year, which would still leave one in four offices empty.

"It's not going to change dramatically until we get people back to work."

The total assessed value of downtown office properties fell by $5 billion over the past year, the city said Thursday, adding those towers now make up only 18 per cent of its total non-residential base, down from about 32 per cent in 2015.

The crescent-shaped Bow Tower, for example, home to oil companies Cenovus Energy Inc. and Encana Corp., lost 18.6 per cent of its value in 2018, falling to about $779 million. In 2015, it was valued at $1.43 billion.

The assessment changes mirror the lower values reflected in recent property sales and could make it difficult for property owners to obtain or renew their mortgages, Kwong said.

Continuing reductions in property values in the downtown area mean property taxes are likely going to have to rise for businesses throughout the city to make up the difference, pointed out Mark Cooper, spokesman for the Calgary Chamber of Commerce.

The chamber wants the city to continue with a program that capped non-residential property tax increases at five per cent over the past two years.

"We've seen the vibrancy stripped from the downtown core due to the rising vacancy rates because of the downturn and now we risk losing businesses outside of the core that are being weighed down by these unsustainable tax increases and other regulatory burdens," Cooper said.

The "root problem" for empty downtown towers is a lack of energy industry investment in part due to proposed federal policies such as the oil tanker ban off northern B.C. and Bill C-69 to revamp the National Energy Board, both blamed for hindering the building of new pipelines, he said.

He added businesses are also facing higher costs due to the province's minimum wage increases, carbon tax and labour law changes.

Alberta oil prices failed to keep up with last year's global oil price rally due to price discounts blamed on a lack of export pipeline capacity.

Many oil and gas companies have released stand-pat 2019 budgets or have postponed capital budgets because of uncertainty. The province imposed oil production constraints of 325,000 barrels per day earlier this week to try to reduce the glut of oil and free up pipeline space.

Residential property assessments in Calgary are down one per cent compared with the previous year and retail assessments were little changed, the city reported.

Property taxes are due on June 28.