Calgary’s office vacancy rate rose 50 basis points to 30.7% in the second quarter, despite the city’s highly praised effort to incentivize office-to-residential conversions, according to a CBRE report.

The rise also contrasted with strong oil prices that have not led to lease increases as they once did.

According to the report, the increase is driven by several factors, including global instability caused by OPEC+’s ongoing expansion of supply quotas and renewed tariff threats from U.S. President Donald Trump.

“The energy patch, quite frankly, is not growing as a lot of people had anticipated,” Greg Kwong, CBRE’s managing director for Alberta, told Postmedia. “They’re all cash-flowing and paying down their debt, but they’re not hiring people, so they’re not taking more space.”

An uptick in mergers and acquisitions is further reducing demand for office space and contributing to a growing sublease market. Vermilion Energy’s acquisition of Westbrick Energy added nearly 40,000 square feet of sublease space in the second quarter, while other notable deals include Sunoco LP’s proposed acquisition of Parkland Corp. and Strathcona Resources’ bid to acquire MEG Energy.

“If these transactions are completed, they will likely add a significant amount of additional space to the downtown market,” said CBRE in the report.

Kwong told Postmedia that the oil industry’s shift toward automation has also curbed energy firms’ office-space needs.

“Thirty years ago, to drill a well you needed 10 to 12 people, plus a computer or a calculator,” he told his interviewer. “Today, you only need one person with a computer, so they’re becoming more efficient at extracting energy out of the earth.”

The local technology sector, once seen as a potential driver of downtown revitalization, is also scaling back.

“We saw an influx of tech companies come to Calgary three or four years ago,” Kwong told Postmedia. “Everybody thought, ‘Oh, that could be our saviour.’ But they have since retracted.”

Recent pullbacks have resulted in 66,000 sf of new sublease space, according to the report.

Still, Kwong expressed confidence in Calgary’s long-term prospects.

“There’s still a lot of optimism as it relates to where you want to live and where you want to work,” he told Postmedia, pointing to recent infrastructure and cultural investments including the expansion of the BMO Centre, an overhaul of Arts Commons, three new hotels, and continued population growth.

The city’s 10 ongoing office-to-residential conversion projects—some of which have faced delays—are expected to remove up to 1.1 million sf of office space, or 2.6% of downtown inventory, while adding more than 1,100 homes.

Pictured: Before-and-after images of the Cornerstone office-to-residential conversion project in downtown Calgary.

Images: City of Calgary