Calgary is set to have the country’s hottest office market this year, with Edmonton close behind.

Calgary is likely to lead the nation in office absorption at 300,000 sq. ft., but the numbers are still off its 10-year average, according to Rob McElhoes, Calgary research director for Colliers International.

Chris Wood, Business Edge
Rob McElhoes predicts more interest in suburban offices.

McElhoes was one of of two key speakers last week at the annual Colliers real estate review, held at Calgary’s Fairmont Palliser Hotel.

Colliers’ annual review figures show that Calgary ended 2001 with a 7.9-per-cent downtown office vacancy rate, up slightly from 7.4 per cent recorded a year earlier.

Most of the rise was due to new supply, and most of the 678,000 sq. ft. absorption was in the first half of 2001.

Thirty per cent of the vacant space downtown was in the sublease market, fuelled by mergers and acquisitions in the oilpatch. The year should end with a vacancy rate of seven per cent.

McElhoes said he believes Calgary hasn’t had the sublease growth of some cities because it didn’t take the heavy hit in high-tech industries.

Development will continue in the Beltline, with vacancy stable at six per cent, Colliers forecasts.

The company also forecasts more suburban office construction, much of it pre-leased before ground is broken.

Demand will drive supply, especially demand from engineering companies, and vacancies should hold at about 10 per cent.

Sublease space will remain a factor in downtown Edmonton as well, where more than 100,000 sq. ft. have been added to the downtown market since Sept. 11.

Economic growth and expansion of local companies will continue to drive absorption in the capital’s office market. Oil prices will rise, and projects in northern Alberta will likely boost demand for office space in Edmonton.

Colliers is predicting a downtown Edmonton vacancy rate below 10 per cent for the first time since the mid-1980s.

Colliers sees Edmonton closing 2002 with a 9.5-per-cent office vacancy rate, down from 10.5 per cent at the end of last year.

Ross Moore, vice-president and U.S. research chief for Colliers International, was the other key speaker at last week’s event.

He compared Calgary to sunbelt cities across the United States. People are moving to the sunbelt for housing, open spaces and good schools, just as they are to Calgary, he said.

The U.S. commercial real estate market changed dramatically last year as the economy slowed.

Instead of lagging behind the economy as it usually does, the real estate market reacted immediately, said Moore.

The U.S. lost about a million jobs last year, mostly in September through November. Among metropolitan centres, only Houston escaped lightly.

Telecommunications companies led in layoffs, so real estate markets with heavy telecom presences were hardest hit.

Nationally across the U.S., office vacancies jumped to 14.1 per cent from 10 per cent. The absorption rate – the change in the amount of occupied space – was minus 72.3 million sq. ft.

Using the rule of 10 (with the U.S. market being roughly 10 times the size of Canada’s market), Canada is still doing better at minus 4.4 million sq. ft., he said.

“We’ve turned the corner and are now probably past the worst,” Moore said. The economy should revive in the second half of 2002 and real estate should have a good year, he added.