COMMERCIAL LEASING REMAINS STRONG

Demand for Calgary downtown office space remains strong
Second Eighth Avenue Place tower nears being fully leased
By Mario Toneguzzi
Calgary Herald April 27, 2012

CALGARY — Continued demand for Calgary downtown office space has been so strong that the latest skyscraper project is getting closer to being fully leased.

Joe Binfet, managing director for Colliers International in Calgary, said the commercial real estate firm has received “tremendous traction” in leasing the West Tower of the Eighth Avenue Place development.

“There are only seven unencumbered floors left on which we can do lease deals on and remember this is a 40-floor, 841,000 square foot office tower. So that’s a significant sign of the strength of the Calgary economy downtown,” he said.

There’s about 150,000 square feet of vacant space in the second tower on the site which just recently began construction.

The owners of the project, which comprises a 49-storey tower on the site of the former Penny Lane block, recently said initial occupancy on the 40-storey second tower is planned for the spring of 2014.

The project is co-owned by Alberta Investment Management Corp., Ivanhoe Cambridge and Matco Investments Ltd.

The existing 49-storey tower, comprising 1.1 million square feet of office space, was completed in early 2011. Its construction began without any pre-leasing.

“There’s continued demand for AA and A space,” said Binfet.

“It’s not a frenzied pace like we were seeing earlier in the year but we are seeing cautious optimism in the marketplace and that bodes well for downtown office space right now.”

A downtown office report by Colliers said there has been 866,351 square feet of absorbed space in the first quarter of this year, marking the 10th consecutive quarter of positive absorption. The overall downtown vacancy dropped from 4.49 per cent in the previous quarter to 4.20 per cent “despite projections that the completion of The Bow, Encana and Cenovus’ new head office, would push the vacancy rate up across all building classes,” said Colliers.

It said AA and A class markets remain very tight with the AA vacancy rate at just 0.59 per cent. This is the lowest AA vacancy rate since 2006.

“Many companies with a long-term outlook for Calgary, and Alberta alike, are looking to new developments as their best leasing solution, given the limited availability within existing buildings,” added Colliers.

A downtown office market report by Avison Young said new office construction is not just possible but necessary.

“Vacancy models assuming even modest annual absorption in the area show downtown vacancy below three per cent for the next five years,” it said.

“It is likely that given the modest absorption rate we will reach sub one per cent vacancy in the downtown by mid-2013. What this means is that at least some major developments currently in pre-leasing will likely commit to construction within the year.”

Avison Young said this has already happened with Cadillac Fairview’s City Centre project while other major downtown developments could move ahead as well.

“Likely candidates include: Brookfield’s Herald Block, Oxford’s Eau Claire Tower, Aspen’s Palliser West and H&R REIT’s Bow South. All these developments are on a four-year or longer timeline so vacancies will remain very low.”

Photo by: Surrealplaces