With the collapse of oil prices and the subsequent damage to the Calgary economy, a lot of people are starting to ask who will lease all the available office space downtown?
With all the layoffs in the last year, the vacancy rate has gone up to around 18% and some say it could go much higher before the dust settles. Rumour has it that there will be even more job cuts in the first quarter of this year and that will free up even more space in all those buildings downtown. That and the fact that there are several new towers coming online between now and 2018, means that the vacancy rate can only go higher. Add to that, the fact that no one seems to think that oil prices will rebound anytime soon and many are predicting that prices could stay below $40 a barrel for several years. Even though Saudi Arabia is starting to feel the pain of low prices, they seem to be determined to stick to the program and keep pumping oil as fast as they can.
So, if prices don’t rise in the near future, who will take up all that excess office space? Well with the high vacancy rate comes lower lease prices. Calgary has had some of the most expensive office rates in North America for years, with only New York and a few other large centres being more expensive. Now that rates are coming down fast, that will give companies that are not related to energy the opportunity to move back downtown. Calgary could even attract some new head offices from other cities now that there are going to be some world class office towers sitting virtually half empty that can be had at a bargain.
It takes several years to build an office tower when you take into consideration the initial planning stages, city approvals, and construction. If a company was in a city that didn’t have a building that suited their needs, they might consider moving to Calgary where there is a young educated workforce waiting for them, and several great towers to choose from as their new head office.
We will have to wait to see what happens, but the city should be actively pursuing this strategy as a way of diversifying our economy so that we won’t feel so much pain when the next boom and bust cycle begins.