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Calgary office report reveals rise in vacancy rate, limited small office space

Recent Colliers International's research shows large office spaces remain vacant as demand for under-5,000-square-feet office space increases
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Less than 10 per cent of downtown Calgary's office inventory is considered small office space. Meanwhile, lots of large office space remain empty.

 

The third quarter report on Calgary’s downtown office market shows the supply for small office space has not yet met the increasing demand, leaving Calgary’s current office vacancy rate of 22.6 per cent to represent mostly larger office spaces.

According to a report released by Colliers International, just 9.8 per cent of Calgary’s office inventory are suites under 5,000 square feet.

“With the increase in emerging oil and gas start-ups and other small office occupiers looking at lower cost office options, the downtown market has seen significant demand for spaces under 5,000 square feet in a market where the average office size is over 20,000 square feet,” notes the report.

To compensate for the limited supply of under-5,000-square-feet sublease spaces, tenants are forced to consider head lease options, said Joe Binfet, managing director and broker of Colliers International in Calgary. Landlords are creating small sections of leasable office space out of larger office floors. Landlords also attempt to entice perspective tenants by offering free rent, improvement allowances and even fully furnished spaces.

The overall office vacancy rate is rising at a less rapid-rate as compared to previous quarters, with a 0.62 per cent increase over last quarter. According to the report, the small increase can be attributed to new space being subleased in downtown Calgary skyscraper, The Bow building.

By 2018, Colliers predicts the vacancy rate will rise to over 25 per cent as three new tower developments – Telus Sky, Brookfield Place and 707 Fifth – are completed. 

The towers are 63 per cent pre-leased. The remaining 850,000 square feet of available space will have an immediate effect on the current office vacancy rate, the report states. According to Binfet, the office vacancy will only decrease if the energy sector recovers substantially. 

“As the downtown office market is heavily reliant on the energy sector, vacancy will continue to climb until we see some major hiring take place,” said Binfet. “There needs to be a significant improvement in energy prices to spark hiring and to restore business confidence in expansion and growth potential.”