Downtown Calgary’s office vacancies continued to decline in the third quarter as the conversion of vacant and underutilized Class B space offset negative net absorption by right-sizing tenants.
While the country as a whole is on track for its first year of positive net absorption since 2019, CBRE Ltd. reported that downtown Calgary is bucking the trend with 214,375 square feet returned this year to date.
“However, vacancy rates continue to decline as building conversions progress and remove underutilized Class B inventory,” CBRE reported Oct. 1.
Downtown Calgary office vacancies averaged 29.6 per cent in the third quarter, down from 30.3 per cent in the first quarter. The return of space largely affected Class A vacancies, which edged up to 24.7 per cent from 24.5 per cent in the first quarter.
By contrast, the third quarter saw several buildings sold for the purpose of conversion while planned projects started construction.
“Conversions continue to occur primarily downtown, but there is also increasing activity in the Beltline and the suburbs,” CBRE reported.
The activity occurred following the approval of new terms of reference in July for Calgary’s Downtown Development Incentive Program, paused in October 2023 pending additional funding. An injection of $52.5 million allowed the program to reopen on September 19.
The development incentive program aims to remove 6 million square feet of underutilized office space from the core by 2031.
The new terms of reference do not change the incentives available to eligible developers, who receive up to $75 per square foot for office to residential conversion projects to a maximum of $15 million per property.
Prior to its termination last October, $153 million had been allocated towards 13 projects totalling 2.3 million square feet of office space. Three projects completed and two were in progress when the city hit pause.
However, the latest city release indicates that $147 million was allocated towards 11 projects under the program, creating 1,500 new residential units downtown. When combined with investments from developers, the city indicastes the program is supporting $588 million in new residential construction in the core.
As well as conversions, efforts to reduce the city’s surfeit of office space this year included three demolitions – the first approved under the city’s Downtown Office Demolition Incentive Program.
The demolition program was announced alongside the development program in 2021 and provides developers with grants of $15 per square foot up to 50 per cent of a project’s demolition cost. An additional $5 per square foot is available if the demolition requires the abatement of hazardous materials, but the total grant cannot exceed 50 per cent of the budgeted demolition costs.
The three buildings, owned by Cantiro Group of Edmonton, occupy the south side of 4 Avenue SW between 5 and 6 Street and have been boarded up for several years.
A press release from the city said demolition will facilitate $100 million worth of new investment in Calgary’s core in the form of a 33-storey mixed-use tower consisting of approximately 340 purpose-built rental housing units including at least 50 affordable units as well as a two-storey retail podium designed to support a variety of commercial uses.
