August 12, 2015
2:56 PM EDT
August 13, 2015
1:02 PM EDT
CALGARY — Calgary’s landmark office towers are sitting increasingly empty as layoffs from the oil price collapse drive up vacancy rates downtown.
A report by real estate consultants Avison Young Wednesday said layoffs by major oil and gas companies in Calgary have helped push vacancy rates up to 11.5 per cent in the second quarter from 8.3 per cent a year ago, which has “weighed down” markets in Western Canada.
“That’s what’s dominating the sublease market right now – it’s your oil and gas companies that didn’t want to get into a 2007 position where they couldn’t find space to house their staff so they over-purchased,” Avison Young principal Alexi Olcheski said.
- Oil sands brace for more misery as Canadian heavy crude plunges to lowest price in decade
- IEA sees oil glut through 2016 after reaching 17-year high
- Saudi Arabia faces existential crisis after its misjudged gamble on oil
His company’s report notes that energy firms have taken “defensive strategies” as oil prices have fallen from above US$100 per barrel to close Wednesday at US$43.30, which include “laying off staff and placing unused space on the sublease market,” the report said.
Suncor Energy Inc. spokesperson Paul Newmarch said the company has sublet one floor in its namesake Suncor Energy Centre in the past year since commodity prices began their slide. Suncor announced it would lay off 1,000 people on Jan. 13.
“Even if we had space, there’s nobody to take it,” Newmarch said, adding that other oil and gas producers are in the same position.
Sublease space now accounts for 40 per cent of the overall vacancies in downtown Calgary, up from 31 per cent in the same period last year, Avison Young said.
Olcheski said the large amount of office space being sublet by energy companies is having a wider effect on commercial real-estate prices downtown.
“Most clients are trying to take advantage of the sublease space,” he said, adding that many companies are willing to accept prices that are 50 to 75 per cent lower than what they’re paying for top-tier office space.
Down the street from Suncor, at the tallest building in Western Canada, the 58-storey Bow, both anchor tenants have been letting staff and contractors go in response to the downturn.
Larry Froom, the chief financial officer of H&R Real Estate Investment Trust, which owns the Bow, said the 158,000-square-metre building was fully leased. That doesn’t mean, however, that the tower is fully occupied.
Cenovus Energy Inc., one of anchor tenant’s in the city’s landmark tower, announced July 30 that the company had identified up to 400 more job cuts in addition to 800 previously announced as it grapples with the commodity downturn.
“We are always reviewing our office space options and pursuing opportunities, including subletting, to align with our staffing requirements,” Cenovus spokeswoman Sonja Franklin said in an email.
She added the company has 2,000 staff in the Bow, but its decision to sublet in the tower was made before Cenovus began reducing its headcount. The company has staff in multiple locations downtown Calgary.
The Bow’s other main tenant, Encana Corp., confirmed in July it had laid off 200 people that month. The company did not respond to requests for comment.
Olcheski said the city’s other new, top-class addresses like Eighth Avenue Place have seen significant sublease space come on the market as oil prices have fallen.
A July report on Calgary’s office real-estate market by Colliers International said vacancy rates may under-estimate how many offices are empty in the city — a phenomenon called “ghost vacancy.”
Colliers pegs Calgary’s overall vacancy rate for the second quarter at 12.75 per cent.
“There is a visible discrepancy between the number of reported layoffs and the amount of listed vacant space,” the report notes.
“Many of the large cap energy companies have decided to hold onto vacant or excess space due to the volatile market conditions as they wait to define a more certain long-term business strategy,” the report said.Comments Join the conversation →