The Conundrum of Downtown Calgary Commercial Real Estate | RENX
Downtown is at the heart of Calgary’s economic future, but the city faces a long road to recovery. The office vacancy rate remains in the low 30 percent range, and 13 million square feet of space – including entire towers – is empty.
A double whammy of depressed oil prices, which began in late 2014, and the ongoing COVID-19 pandemic has slammed the commercial real estate market in the heart of the city. The value of downtown office buildings has fallen $ 16 billion since 2015, a dramatic 63% drop in value.
The recent Calgary Real Estate Forum highlighted the plight of the downtown office market and the city’s plans to invest $ 1 billion over the next 10 years to revive the city core during a few panels and presentations. However, it will not be an easy trip.
The city has so far approved $ 45 million in financial incentives for the conversion of downtown offices to residential properties.
Also allocated an additional $ 5 million for certain downtown improvements, $ 55 million for capital improvements, $ 5 million to activate downtown and public spaces, and $ 10 million to support a dedicated team. to the city to lead these and other potential initiatives.
Revitalize downtown Calgary
Trent Edwards, Chief Operating Officer, Alberta, for Brookfield Residential, said it will take 10 to 15 years to get to where the city needs to go on this journey.
He said it takes around $ 450 million in incentives to effectively eliminate a large amount of empty space. It would help rebuild a tax base, create dynamism by removing that black (or empty) space and filling it with residential or other uses.
“We’re not just trying to try to fill all that vacant space with residential space. There are going to be a lot of other forms, whether it’s student housing, universities, or vertical farms, ”Edwards said.
He noted that demolition could also be an option for some properties to create more parks or other amenity spaces. “We have to focus. “
The key, Edwards said, is to create a vibrant downtown to attract and retain talent in this central area.
“You look at some of these other cities – Austin, Nashville, Pittsburgh, Denver, even Detroit now. There is a similar recipe that all of these cities have followed and, again, the sharp end of the stick is to attract and retain talent, as this will attract and retain capital.
He said the formula is consistent – low taxes, ease of doing business and a vibrant downtown.
“If we can focus on putting the amenities in the city center, if we can focus on creating an exciting place that people want to come to and attract this young talent, I think everything else comes together. goes on, “he said. “We have a vacant position. We have affordability. But, unfortunately, this does not attract talent.
Amazon’s harsh but valuable review
This was evident in recent years when Amazon sought to establish a second headquarters in Canada. Calgary was heavily involved in the auction game, but Edwards said the city received harsh but valuable feedback from the e-commerce retail giant.
“Their main comment was, ‘You weren’t selected to be on a shortlist because your downtown sucks. It’s just not cool ‘and it’s the one that hit me right in the eye, ”said Edwards.
“If we can create this exciting place, not only does it attract and retain talent, but everyone benefits because of course we are going to replenish that tax base, we will create jobs because we have the vacant space for that to happen. people can move in and we have a good tax base compared to the rest of Canada.
Thom Mahler, Manager, Urban Initiatives and Program Manager, Downtown Strategy for the City of Calgary, said the challenge for the core is exacerbated by the COVID-19 pandemic, the growing trend of working from home, the growth of e-commerce, the susceptibility to extreme storms such as flooding, declining tourism and travel business and the need to diversify the economy.
“In order to re-value our properties in our downtown area and restore the vibrancy we were used to in Calgary, we need to attract more talent and how do we attract talent? Well you’ve got to have a great place, ”said Mahler.
“There is a synergy between the design of our downtown and the programming of our downtown in a way that is not only fulfilling for all of our population, but which also has a specific focus on the talents that we let’s try to attract.
Recreate living neighborhoods
This task is to create vibrant urban neighborhoods, amenities where and when people want it, access to training, education and research, high connectivity of public transport, mobility options, connections to surrounding areas, security, cultural and entertainment attractions, and connections to the airport and to the mountains.
“We need a new vibe in our city center. We need to review our regulations to make sure we have things in place, whether it’s approvals, policies, to make sure that there are no barriers, but more importantly, that ‘they enable the kinds of development that we are trying to encourage,’ said Mahler. .
The $ 45 million Calgary Downtown Development Incentive Program was launched in August and there have been 13 requests to convert up to 600,000 square feet of office space into residential development.
The grant itself is $ 75 per square foot and a maximum of $ 10 million per building. It is possible to exceed $ 10 million, but that would require going to the city council for additional investments.
Mahler said the city wanted to transform Stephen Avenue into an “iconic” main street in the city center. The plan is also to transform 8th Street with a strong emphasis on green spaces and spaces where businesses can spill onto sidewalks. It also includes the extension of the West Parkway along the Bow River further west.
Investments are also planned for the Olympic Plaza and the city is considering a new downtown public market to attract people.
Mahler said the top priority is to find the funding so that the city can carry out the comprehensive revitalization plan. The $ 200 million is a start.
All governments must be involved
Greg Guatto, President and CEO of Aspen properties, said a major investment from all three levels of government in the order of $ 1 billion is needed.
“The $ 45 million (incentives) was a good start and I think we need $ 450 million over time to do it. Without that incentive I can tell you these office buildings wouldn’t be converted into residential buildings. It’s so important, ”Guatto said.
“The other thing that I think our city should consider highly is the incentives to attract business here to the city.
“I see it as owning a property. You have to offer incentives or you won’t have a tenant in your portfolio and there is a return on your investment, even if they leave at the end of their lease.
He said significant private capital will follow if these plans are undertaken. One key is having the talent to attract business.
Guatto also noted the difficulty of converting some office space into housing. He said there are unlikely to be many condominium conversion projects, but there is potential for more specially designed rentals.
“It’s going to take a dramatic increase in the demand for housing that will increase rental rates and downtown has to be a cool place to live with amenities,” he said. “You have to give people a reason to live downtown on top of cheap rent. “
Guatto said post-secondary institutions need to have a greater presence in downtown Calgary, connect with business and become a pool of talent.
“And by the way, if you want to convert an office building into something, student housing works pretty well,” he said.
Exit from the energy economy
Guatto said Calgary is not just about energy.
There is the digitization of virtually every business that drives growth in the tech sector, including energy companies. This is happening in other major Canadian centers like Vancouver, Toronto and Montreal.
Calgary is just late for the party, he said, because so many of those jobs were being generated by traditional oil and gas and the education system was put in place to fuel that. However, things have changed.
“I can tell you anecdotally about our portfolio in this calendar year. . . we’ve made 325,000 square feet of new rentals and it’s mostly technology companies, ”Guatto said. “Lots of really cool tech companies and that’s where the growth is coming from. It’s these tech companies.
“They start out small and they are the ones who grow up. “