Downtown development slowing
Fewer cranes on skyline as recession ends frenzy
28 March 2010
It wasn't long ago that Calgarians could go practically anywhere in the downtown or nearby Beltline, look skyward and see a crane towering over the city's streets.
The structures used in building Calgary's highrise edifices had become known as the city's unofficial bird.
With millions of square feet under construction in both the offi ce and condo markets, activity was at a frenzy. In the downtown office market alone, about six million square feet were under construction not long ago.
Fast-forward to today.
Many of those cranes are gone as the downtown core, specifically, is approaching the end of the current building cycle.
The recession clearly jeopardized some residential condo projects. From 2006, it's estimated 17 condo projects were put on hold or cancelled after launching their sales campaigns.
Greg Kwong, regional managing director for Alberta for CB Richard Ellis Ltd., a commercial real estate firm, is blunt when asked what impact last year's economic woes had on development in Calgary.
"Killed. Basically millions and millions of dollars of projects were absolutely slammed shut as a result of the last 18 months . . . it just absolutely killed demand -- office space, condo space," says Kwong.
This trend took place throughout the city, but "it's exacerbated downtown. Even more amplifi ed how quickly it shut down."
When two massive downtown developments -- The Bow and Eighth Avenue Place -- are completed in the next couple of years, it will end the cycle for downtown office development.
The Bow (1.7 million square feet) should be ready for occupancy by the middle of next year, while Eighth Avenue Place (just over one million square feet) should be ready for occupancy in November.
Overall, this building cycle will have added about six million square feet to the downtown office inventory, growth of more than 11 per cent.
In turn, industry experts expect vacancy rates to rise to the 20 per cent range with the completion of the two megaprojects.
"The last true real building cycle was late 1980s -- '88, '89. I don't think you'll see something to this magnitude for quite some time," says Kwong.
"I don't see anything major new coming up for the next five years."
A report last month by economic consulting firm Altus Group described the local condo market as remaining "mired in a slump" with about 2,000 unsold units, although that's down from 3,200 a year earlier. Half the decline was due to cancelled projects.
Richard Pootmans, Calgary Economic Development's business development manager for real estate, says the downtown office market and the inner-city residential condominium market are distinct markets, but related in their growth cycles.
The key to the interrelationship, he says, is that about 25,000 new jobs will eventually be created in the downtown with all the office space that's available -- likely over a 10-year period.
As those thousands of new downtown workers begin to occupy the new office space, a portion will choose to live in the inner-city, driving condominium demand.
"As nature abhors a vacuum, so does the real estate market abhor vacancies. At some point, empty space will be leased by someone as landlords are eventually driven to fill their buildings," Pootmans adds.
After a pause of a year to 18 months, some condo projects are coming back, reflecting the current economic situation with lower pricing.
According to Buss Marketing in Calgary, there are about 10 residential projects still under construction in the downtown.
Matthias Tita, manager of Centre City planning and design for the City of Calgary, says development always occurs in cycles and today, buildings are being completed and there are also fewer planning applications for major projects.
In the first two months of the year, building permit applications in the city for non-residential construction totalled $150 million, compared with $198 million for the same period a year ago.
"But at the same time, we're working with a lot of people on adjustments to existing permits and phasing and so on. New owners are coming on board and we're still working with some applicants on longer-term concepts, especially commercial landowners," says Tita.
Calvin Buss, president of Buss Marketing, says the bellwether numbers for building in Calgary are the employment figures.
In February, the number of people employed in the Calgary area was down 9,700 from a year ago, Statistics Canada reports.
"When we have job creation, then we're going to start to feel more comfortable that the market is actually going to start moving ahead," Buss says.
With 2,000 condo units on the market, that's a lot of inventory to absorb, "but it doesn't mean developers aren't going to start sticking their neck out to see if they could be first off the mark.
"There's people out there that are biting at the bullet right now and assessing their values and saying, 'Yes, I think we should get going.' "
When construction on the Palliser South office tower began about three years ago, the city's economy was booming and the downtown core's vacancy rate was minuscule.
Today, the economy is slowly recovering from the recession and the office vacancy rate continues to rise.
300,000-square-foot, 19-storey Palliser South, just east of the Calgary Tower, is ready for occupancy, with about 35 per cent of the space already leased. It is an example of one of the major commercial projects started during the boom.
"The issue with the Calgary market is not so much the demand side of the equation. I think we've got a healthy oilpatch today," said Scott Hutcheson, chairman and CEO of Aspen Properties, which developed Palliser South.
"The supply side is obviously the issue, with five million square feet (of new construction) coming on."
The head out front is very impressive -- the 'double curtain wall' effect that creates an atrium that stretches right to the top of the building, even the much smaller plaza to the north -- have been done with panache. The statue of the 'tree hugger' is whimsical but so slight it doesn't detract from the overall imposing site. Beautiful.