According to a new report from Avison Young, Calgary’s office market is poised for a strong performance in 2023 despite a predicted slowdown for the commercial real estate sector as a whole.
The company is releasing its Calgary office market report for the fourth quarter (Q4) of 2022, which it says capped off one of the strongest leasing environments the Calgary office sector has seen in years.
However, the company notes a year-long streak of positive absorption activity for the overall market ended, with a negative 120,519 square feet of absorption recorded in Q4.Â
Avison Young says most of the gain the market experienced this quarter was offset by major downtown tenants in the energy industry finding a space better suited to their operations.
According to the commercial real estate company, the momentum was felt beyond the downtown core, with suburban markets recording a seventh quarter of positive activity. In addition, the overall office market experienced a positive absorption of 131,820 square feet throughout the year.
The year ahead
The company notes many industry experts are predicting a slowdown for the entire commercial real estate sector in 2023, with investment levels anticipated to be in flux amidst an environment of fiscal restraint.
Given this, Avison and Young says Calgary still appears to have the right fundamentals to perform well compared to other areas of the country.Â
The strong environment for commodity prices is predicted to remain elevated for some time to come, creating a favourable environment for our economy. The strength of the city’s industrial, residential and land sectors will continue to bring investment and relocation to the market.
Source: Avison Young Canada
Office market trends
Avison Young has identified three office market trends for Calgary.
1. Inner city and suburban tenant diversityÂ
Submarkets outside of downtown had a banner year, and Avison Young attributes that to the diversity of tenants.Â
The healthcare, engineering and energy sectors were the most active in 2022. Calgary’s burgeoning tech sector is still on the rise, but the activity hasn’t been enough to drive market forces, the report explains.Â
The start-up and small-cap tech scene has traditionally been attracted to inner-city and suburban submarkets, but the downtown, with its larger floorplates and rich social scene are changing this dynamic.Â
Avison and Young anticipates that municipal and provincial governments will continue pushing Alberta’s tech industry.
2. Rental rate pressures
Rental rates have been on an upward trajectory for the past year, with Class A & AA spaces leading the way.Â
Leasing costs will continue to face upward pressure in the coming year, with the main contributors being the flight to quality and the strain of high inflation.Â
The commercial real estate company expects these two trends will continue to have a heavy influence on the market.Â
In addition, construction cost increases and delivery delays will continue to be factors to contend with for new space build outs, according to Avison Young.
3. Flight to quality continuesÂ
The report states that conversations around the necessity of modernizing and adapting space are becoming ever-present and a major theme in the battle for attracting talent and retaining staff.Â
But Avison Young says one thing for certain is the perspective that the “old-fashioned office” has become “out of fashion.”
Read the full report here.
