Calgary’s commercial real-estate markets started 2004 with a third successive quarter of healthy activity in the downtown office sector – vacancies falling and occupancy increasing – as a healthy oil and gas sector powered the city’s economy forward.

A recent report from CB Richard Ellis pegs the industrial vacancy rate at 4.1 per cent, down from 4.4 per cent at the turn of the year. The report says there was 500,000 square feet of new construction, but 885,300 square feet of space was absorbed by the marketplace.

“There is demand again for new warehouse space,” said Paul Derksen, a vice-president at CB Richard Ellis Alberta Ltd., who specializes in industrial real estate.

New distribution companies are eyeing the Calgary market, as are operating companies looking for warehouse space. Warehouse operators have had empty space for a couple of years but are now full again, Derksen said.

At the same time, the industrial property market also saw vacancies decline.

In the downtown office market, the vacancy rate fell by more than a percentage point, to 11.3 per cent.

CB Richard Ellis reports that available office space downtown is now at its lowest level since the end of 2001.

Andrew MacLachlan of J.J. Barnicke’s Calgary office says recent leasing activity has been smaller companies – under 10,000 square feet – moving and growing.

He also noted that sublease space has declined greatly since last year. Sublease vacancies hold rents down, so the downtown market is now seeing slight increases in rental rates or lower tenant incentives.

Mark Kolke, president of MaxComm Realty Advisors Inc., says the downtown office market is in a state of flux.

The absorption of office space in the last six months has been partly new leasing and partly sublease space being withdrawn from the market.

Rental rates will rise later this year and into next, peaking in 2006, says Kolke. Asked if that means new office construction is on the horizon, he said: “I believe that there will be enough movement in the market that someone will commence a new building in the next 18 months.”