RENX • December 17, 2024

Calgary’s downtown office market has experienced elevated vacancy levels for over a decade, and with its lower-class buildings, the west end of the inner city has been particularly hard hit.

But there has been a glimmer of hope in the past two years as leasing activity has picked up for the battered asset.

In fact, according to Aly Lalani, executive vice-president, partner with Colliers, 2023 saw the most leasing activity in the west end in the past 10 years.

“A big cause of that is conversions (to residential space). We took 2.8 million square feet off the market – 120 tenants into the market. A lot of these tenants are already in the west end,” Lalani explained.

Ongoing conversions to spur more activity

Lalani said he foresees more conversion activity taking place with the city’s goal to eliminate six million square feet from downtown inventory.

“The city has provided grants for 1.5 million square feet. That’s all they’ve granted. The other 1.3 million square feet is from companies doing it on their own and maybe hoping for a grant after the fact. I think conversions will continue. The economics obviously have to make sense and with rising construction costs it is a factor, but I would say conversions will continue,” he said.

That will spur additional office leasing activity.

According to research from Barclay Street Real Estate, the Q3 downtown office vacancy rate in Calgary was 19.2 per cent, which is trending down. In the class-B market, it is 34.7 per cent but also trending down.

A Q3 downtown office report by JLL cited just under 10 million square feet of inventory in the “west core.” The quarter saw just under 184,000 square feet of net absorption and total net absorption year-to-date was just under 314,000 square feet.

JLL said the average direct asking gross rent was $27.98 per square foot in the west core and $39.99 in the central core.

Kris Hong, executive vice-president, partner with Barclay Street Real Estate, agrees continued conversions will create more activity.

“Supply and demand . . . Definitely there’s a flurry of activity as tenants are sort of scrambling trying to find options when their building is getting converted. That’s why deals are actually more active in the market,” he said.