The downtown Calgary office market experienced its most robust year of net absorption since 2014 in 2023, says a new report from CBRE.

The market absorbed a total of 415,000 square feet while also witnessing a sixth consecutive quarter of declining vacancy rates. CBRE expects the vacancy rate to fall to about 28% by year-end 2024.

“If we get down to the projected numbers we’re looking at, I think it would be a job well done,” Greg Kwong, CBRE’s managing director for Alberta, told the Calgary Herald.

“We’re clearly not out of the woods, though. It’s still a very high vacancy relative to other markets.”

However, the downtown sector has become bifurcated due to a significant demand gap between class AA inventory and all other classes. Class A product has 15.6% vacancy rate, or 9.2% if only headleases are considered, But B and C class vacancy rates sit at 41.7% and 42.1%, respectively.

“As class B and C buildings continue to face challenges, the key to reducing downtown’s elevated vacancy rates remains the conversion of office space to alternative uses,” said CBRE.

The City of Calgary’s downtown office-to-residential conversion program has become the envy of other North American jurisdictions. But the program was paused after the city exhausted the $75-millin budget for it.

Another alternative use to watch is education, said CBRE, noting that some post-secondary institutions are considering expansions.

To address this divergence, investors and developers are exploring alternative uses particularly in the class B and C segments.

The oil and gas sector remains the market’s biggest demand driver. CBRE confirmed that Canadian Natural Resources will lease 650,000 sft in the former Shell Centre and 340,000 sf in 400 Third Avenue while vacating 650,000 sf in Bankers Hall and TD Square – Home Tower in 2026.

The “monumental transaction” has closed and will have a significant impact on the market, said CBRE.

Photo: Mulvey+Banani