Downtown Calgary office vacancy rate still highest in Canada, but trending in right direction
Calgary's vacancy rate is higher than the national average, but significantly down from its peak in 2021
Calgary's downtown office vacancy rate is still the highest in the country, but things are trending in the right direction, according to figures from commercial real estate services company Altus Group.
The sentiment is echoed by the downtown strategy team at the City of Calgary, which expects the city's office vacancy rate to decline further in 2025.
Raymond Wong, vice-president of data solutions and client delivery for Altus Group, says as of its most recent data from Q3 2024, Calgary's office vacancy rate is 23.3 per cent, about five per cent higher than the national average, But it's down from Q1 2023, when it was 25 per cent.
Natalie Marchut, manager of development and strategy with the downtown strategy team at the City of Calgary, says the city's downtown office vacancy rate was even higher when it peaked in 2021 at about 34 per cent.
Wong says the city has made good progress in driving that figure down.
"Part of that progress is, as you know, we've had a steady increase in your population growth based on housing affordability... So it's causing your office availability rate to actually drop in comparison to some of the other markets across Canada," Wong said.
Marchut says Calgary's office vacancy rate started becoming a problem in 2014 when the city's largest sector, the oil and gas industry, entered a severe and prolonged downturn, resulting in tens of thousands of layoffs.
Marchut says that caused vacancy rates in Calgary's core to rise steadily for a number of consecutive years.
"Some of the large oil and gas companies were either downsizing or merging because of the recession. But it also affected a lot of the support industries for that sector," she said. "So it wasn't just necessarily oil and gas companies, but any other commercial use that was supporting those industries would also have been affected. And so that's why that number is so high."
Demand for space returning
Wong says demand for office space is now starting to come back in Calgary. He says many companies, not just in the oil and gas sector, are trying to attract talent by being situated in an office that is centrally located, has great amenities and great restaurants nearby.
"You know, your latest and greatest coffee shops, to fitness centres to other amenities such as dry cleaning within the building to satisfy employees," Wong said.
Banker's Hall fits that description, and although the vacancy rate at that building is still relatively high at around 20 per cent, it's lower than the downtown average, which indicates that companies in the energy sector as well as the financial and business services industry still have a desire for office space of that kind, Wong says.
He added that between increased demand and city-led efforts to bring down office vacancies, it's likely things will continue to trend in the right direction through 2025.
Calgary's office conversion program a success
Calgary is primarily tackling its high downtown office vacancy by converting empty offices to other types of spaces, mostly housing, through an incentive program launched in 2021.
Marchut says the program has been instrumental in bringing down vacancy rates, and the city has seen incredible uptake from developers. She added the city has received more applications under the incentive program than it has funding for.
"We have already 12 buildings that have been approved to receive funding that are actively converting their space out of office to, again, primarily residential use," she said.
Marchut added five additional office building conversions will be complete in 2025, which will further drive down Calgary's office vacancy rate.
Wong says Calgary's approach to incentivize converting office space is a smart one, but taking functionally obsolete buildings that have outlived their life as an office space and repurposing them is not without its challenges.
He says many office buildings have large, sprawling floors that cannot readily be reconfigured as residential spaces.
"If you're in the middle, there's no light, right? How do you get natural light into a living space?... Sometimes it's just not functional," Wong said.
Marchut says Calgary's office conversion program has been largely successful. The city's goal is to convert six million square feet of office space across the downtown. Currently, just under two million square feet are being converted through approved projects.
She added that the city has another program for office buildings that can't reasonably be converted to a different use because of cost, building code issues or general deterioration. For those buildings, the city can provide a financial incentive for companies to demolish them and prepare the site for redevelopment.
Marchut says Calgary's use of incentive programs is creating a domino effect that's helping the vacancy rate trend in the right direction.
"Through those programs, oftentimes a building that comes in as a proposal to us isn't fully vacant at the time. And so the tenants that are there are being relocated to other buildings in the downtown that are vacant," she said.
"And so we kind of get that double win where we're repurposing one building and we're also creating net new absorption in a different building."
Marchut points to The Cornerstone as one of the office-to-residential conversion program's early success stories. It was the first building to be completely renovated from an office building to housing through the program.
"Yes, we're tackling vacancy, but we're also obviously delivering housing, we're delivering net new business downtown, we're bringing more people into the downtown that otherwise probably wouldn't come," she said.
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