Always Tip Your Waiter
Who really hurts when the downtown Calgary vacancy rate plunges to historic lows?
For the past year, mainstream media have focused on one thing when it comes to downtown Calgary – a plunging commercial occupancy rate that has hit record levels, and is threatening to dive deeper. With oil projections indicating prices will remain flat for a while longer, it’s safe to worry that this trend stands to thrive — historically almost 75% of downtown Calgary office space has been occupied by the energy sector, and majority of the remaining 25% are there in some way support it. And rely on it.
The vacancy rate in Calgary’s downtown jumped to 24.2% in the first quarter of this year—approximately 10.1 million square feet of space is available in a market of just over 40 million—leaving almost a quarter of Calgary’s downtown office space sitting empty. And that doesn’t even include the forthcoming 707 Fifth building, expected to be completed this year, or the 450,000+ square feet coming up for sublease in The Bow in 2018, or the unleased portions of Brookfield Place or Telus Tower, etc, etc.
Broken Down Even More
Energy companies have taken a hard hit over the last 18 months, but the bigger issue for the downtown core is the ripple effect that empty space has on the overall economy. Historically, commercial real estate in downtown Calgary was a lucrative, moneymaking industry, where landlords enjoyed tenants looking for long-term occupancy of multiple floors, and willing to pay a premium for the space. Today, those same landlords are keeping their lights on by frantically subleasing the space now abandoned by their previous dream tenants.
A positive trend to come out of this mass exodus of the downtown office hogs, according to Barclay Street report, is an uptick in “green shoots”- small start-ups leasing space appropriate to their size. While this sounds promising, the good news is tempered by the reality that less people downtown means less people spending money in their stores. Optimism in the darkest times is a beautiful thing, but the Central Business District retail vacancy rate has continued to rise over the last quarter as well, up to 11.5%, which means that still more small businesses are struggling.
The big oil companies will survive, they will bounce back to thrive another day. Landlords will be able to scrimp by, trading 60,000+ square foot leases for as many 2,000 square foot leases as their pens will sign. But it’s the small business owners, the coffee and sandwich shops, restaurants and bars, hair salons, tailors and boutique stores, grocers and corner markets that really take a hard hit when the price of oil and disposable income dries up, and downtown Calgary is certainly dustier than usual this spring.
It’s no surprise that a slumping energy industry means plunging vacancy rates in downtown Alberta. But is it just the energy companies that lose?