Calgary's office vacancy rate ticks down for first time since start of COVID pandemic

A pedestrian is reflected in a sign advertising office space for lease in downtown Calgary, Alta., Wednesday, April 13, 2016. (THE CANADIAN PRESS/Jeff McIntosh)

Calgary's downtown office vacancy rate has declined for the first time since the start of the COVID-19 pandemic, according to commercial real estate firm Avison Young.

The firm's latest report on the city's office market says Calgary's downtown vacancy rate ticked down in the fourth quarter of 2021, to 29.7 per cent from 29.9 per cent. This is the first time vacancy rates have fallen since the fourth quarter of 2019.

"I talk to my brokers who are out in the market, touring tenants, and they're busier than they've been in two years," said Susan Thompson, Avison Young's insight manager for Alberta. "There's lot of activity and momentum out there, and as that starts to translate to closed deals, that positive momentum is going to continue."

Calgary's downtown - once the tightest office market in Canada with a vacancy rate of just 0.3 per cent in 2006 - has been severely impacted by years of low oil prices and a wave of mergers, acquisitions and layoffs in the oil and gas sector, beginning in 2015.

Then the pandemic hit, exacerbating the situation. Between the fourth quarter of 2019 and the fourth quarter of 2021, Calgary's downtown vacancy rate increased to 29.7 per cent from 24.2 per cent, according to Avison Young.

Nearly 1.3 million square metres of office space in the city's core currently sits empty.

But Thompson said she believes the tide is beginning to turn. Calgary's December 2021 unemployment rate of 8.2 per cent was well below the pandemic peak of 15.7 per cent in June 2020 and has been trending downward throughout 2021.

In addition, Alberta's rapidly growing tech sector has been moving into space in the downtown core. Commercial real estate firm CBRE said in December that the tech sector now occupies between five and eight per cent of the city's downtown office space.

Thompson pointed out these factors, combined with efforts from both the private and public sector to chip away at the downtown vacancy rate, appear to be making a difference. Landlords have renovated buildings to attract a different type of office tenant, while the City of Calgary has approved $200-million in spending on downtown improvements.

"Real estate decisions take time to play out, so what's happening today probably started 12 to 18 months ago," she said. "Calgary's a very resilient city. We tend to find a way to grow and come back no matter what seems to be thrown at us."

City officials have suggested it will take decades, not years, to solve Calgary's empty office tower crisis.

Thompson acknowledged there is no "silver bullet," and even by the end of 2024, vacancy rates in the downtown will likely still be in the 27-28 per cent range.

"But while it could be bumpy from quarter to quarter, the overall trend is positive," she said.

This report by The Canadian Press was first published Jan. 31, 2022.