Cushman & Wakefield's Q2 office market report

1. Calgary, AB
OfficeQ22017
MARKETBEAT
Economic Indicators
Market Indicators
Overall Net Absorption/Overall Asking Rent
4Q TRAILING AVERAGE
Overall Availability**
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Economy
The shadow of the 2014 downturn in oil prices continues to loom
large in Calgary. Recent data published by the International Energy
Agency (IEA) shows that the stockpile of crude oil in the U.S. fell
below forecasted. This resulted in oil prices plunging by 7%, and
are now at the lowest point since December 2016. These market
factors, in combination with weak demand and low commodity
prices, continue to negatively impact Calgary’s economy. The May
2017 unemployment rate reached 9.3%, the highest of any major
city in the country, and consumer debt and delinquencies continue
to soar. A wave of companies have also filed for bankruptcy, further
adding to an all-time high downtown vacancy.
Market Overview
A lack of diversification of the economy continues to have a
profound impact on office space in Calgary’s Central Business
District (CBD). Fueled by the addition of 509,248 square feet (sf) to
the downtown inventory, the vacancy rate rose by 1% from first
quarter 2017, inflating downtown availability to historic levels.
Technology and sustainability continue to influence tenants’ rental
decisions as they prefer newer buildings. For instance, Brion
Energy, an oil & gas company, moved from Encana Place, a Class
A building, to 707 5th Avenue, an AAA building.
Owing to these ‘rental flights’, it is not a surprise that Class AAA
assets returned a positive absorption of 197,891 sf this quarter.
Class A and B asset classes bore the brunt of the tectonic shift in
rental space. Combined, these classes returned a negative
absorption of 619,818 sf city-wide.
The Beltline market saw negative absorption in part due to weak
demand. Market wide absorption was negative at 409,853 sf, all
coming from the Beltline and suburban markets. Indeed, this
negative absorption added fresh significance to the fact that
Calgary’s economy struggled in the first half of 2017. While there
were signs that the recession was over; as the market skidded on
the bottom and some subleases were withdrawn from the market –
Class B assets have been unable to attract tenants. Additional
supply of inventory and a weakened economy combined to exert
pressure on net rental rates that were hitherto sliding south.
Outlook
There is little to cheer about concerning the next six months as
Cushman & Wakefield forecasts continued anemic demand. The
elation that followed first quarter 2017 forecasts that Calgary would
lead the nation in economic growth will likely turn to disappointment
as huge uncertainties remain about the price of oil. Sustained
growth will depend on the stability of oil price and diversification of
the economy. Tech companies, such as Rocket Space that is
scheduled to open shop in third quarter 2017, are worth noting as
demand from this sector will shape Calgary’s downtown market in
the distant future.
With the market taking time to correct itself, technology and
sustainability impacting tenants’ rental choices, a sluggish economy,
and with 1.9 million square feet of inventory coming into the market
by 2018 – adding to a market that is already bruised – the road to
recovery will be painful and long.
Q2 16 Q2 17
12-Month
Forecast
Calgary Employment 802K 828K
Calgary Unemployment 8.1% 9.3%
Canada Unemployment 6.9% 6.6%
Q2 16 Q2 17
12-Month
Forecast
Overall Availability 19.2% 21.9%
Net Absorption (sf) -1,064,134 -409,853
Under Construction (sf) 3,313,773 2,112,788
Average Asking Rent $37.60 $36.13
CALGARY OFFICE
Historical
Average =
8.47%
`
$25
$35
$45
-1,500,000
-1,000,000
-500,000
0
500,000
1,000,000
1,500,000
2,000,000
2012 2013 2014 2015 2016 Q2 2017
Net Absorption, SF Gross Asking Rent, $ PSF
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2012 2013 2014 2015 2016 Q2 2017
**Overall Availability reflects current availability in addition to upcoming availability in the next 6 months
Historical Average = 12.0%

2. Calgary, AB
OfficeQ22017
MARKETBEAT
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SUBMARKET
TOTAL
BLDGS
INVENTORY (SF)
TOTAL
VACANT
(SF)
CURRENT
AVAILABILITY
RATE
OVERALL
AVAILABILITY
RATE**
CURRENT NET
OVERALL
ABSORPTION
(SF)
YTD NET
OVERALL
ABSORPTION
(SF)
UNDER
CONSTR
(SF)
OVERALL
AVERAGE
ASKING RENT
(ALL CLASSES)*
OVERALL
AVERAGE
ASKING RENT
(CLASS A)*
Central Core 74 20,310,787 4,509,674 22.2% 22.7% 205,641 69,814 0 $39.84 $43.23
East Core 51 14,202,065 3,265,075 23.0% 25.0% -290,249 -257,067 1,841,493 $38.85 $39.96
West Core 69 8,173,885 2,124,226 26.0% 26.9% 103,634 84,022 0 $29.91 $27.84
Downtown Total 194 42,686,737 9,898,975 23.2% 24.3% 19,026 -103,231 1,841,493 $37.07 $40.54
Beltline 155 7,740,736 1,377,907 17.8% 18.7% -133,958 -4,486 0 $33.09 $38.26
Central Total 272 50,427,473 11,276,882 22.4% 23.4% -114,932 -107,717 1,841,493 $36.59 $40.39
Northwest 79 2,394,590 265,641 11.1% 11.3% 505 -6,608 163,890 $34.49 $36.16
Northeast 133 7,150,513 1,124,926 15.7% 15.8% -141,901 -81,132 0 $32.79 $37.37
Southeast 144 7,825,227 1,884,246 24.1% 25.2% -75,507 -37,596 4,000 $33.92 $35.59
Southwest 44 3,539,300 716,856 20.3% 22.3% -78,018 -45,964 103,405 $34.18 $35.52
Suburban Total 400 20,909,630 3,991,669 19.1% 19.9% -294,921 -171,300 271,295 $33.70 $36.04
CALGARY TOTALS 778 71,337,103 15,268,551 21.4% 22.4% -409,853 -279,017 2,112,788 $36.13 $39.58
Key Lease Transactions Q2 2017
PROPERTY SF TENANT TRANSACTION TYPE SUBMARKET
Encana Place 75,000 RocketSpace Headlease Downtown – East Core
Glenmore Professional Centre 70,800 Bantrel Inc Renewal Southwest
Centrium Place 51,474 Trilogy Energy Corp Headlease Downtown – Central Core
Bow Valley Square II 26,495 STEP Energy Sub Lease Downtown – East Core
Centrium Place 23,000 Carscallen LLP Headlease Downtown - Central Core
Key Sales Transactions Q2 2017
PROPERTY SF SELLER/BUYER PRICE / $PSF SUBMARKET
Ford Tower & Alpine Building 201,349 Artis Alpfordeau Ltd/Ford Tower GP Ltd $37,500,000 / $186 Downtown – Central Core
Franklin Atrium 149,660 Dream Office REIT/1923846 Alberta Ltd $10,250,000/ $68 Northeast
SUMMARY BY CLASS
TOTAL
BLDGS
INVENTORY
(SF)
TOTAL
VACANT (SF)
CURRENT
AVAILABILITY
RATE
OVERALL
AVAILABILITY
RATE**
CURRENT NET
OVERALL
ABSORPTION
(SF)
YTD NET
OVERALL
ABSORPTION
(SF)
UNDER
CONSTR
(SF)
YTD CONSTR
COMPLETIONS
(SF)
OVERALL
AVERAGE
ASKING RENT*
Class AAA 19 14,674,884 2,231,195 15.2% 15.9% 197,891 246,883 1,841,493 0 $47.10
Class A 232 33,924,883 7,935,191 23.4% 24.5% -419,357 -227,992 229,935 0 $37.27
Class B 322 18,449,918 4,204,040 22.8% 23.7% -200,461 -323,500 41,360 0 $31.61
Class C 205 4,287,418 898,125 20.9% 21.9% 12,074 25,592 0 0 $29.28
*Rental rates reflect gross asking $psf/year
*Rental rates reflect gross asking $psf/year
About Cushman & Wakefield
Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live.
The firm’s 43,000 employees in more than 60 countries provide deep local and global insights that create significant value for
occupiers and investors around the world. Cushman & Wakefield is among the largest commercial real estate services firms with
revenue of $5 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global
occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and
valuation & advisory. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.
Copyright © 2017 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple
sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or
representations as to its accuracy.
Cushman & Wakefield
111 – 5th Avenue SW,
Suite 1730
Calgary, AB T2P 3Y6
www.cushmanwakefield.com
For more information, contact:
Ayo Peters
Research Manager
Tel: +1 403 261 1111
ayo.peters@cushwake.com
**Overall Availability reflects current availability in addition to upcoming availability in the next 6 months
**Overall Availability reflects current availability in addition to upcoming availability in the next 6 months