Calgary’s downtown office market continues to be challenged with a high vacancy rate but commercial real estate experts have identified a flight-to-quality trend taking place due to lower rental rates.
A report by commercial real estate firm CBRE says the flight-to-quality trend continued in the fourth quarter of 2018, resulting in another decrease in Class AA vacancy.
Class AA product saw positive absorption – the change in occupied space – of 463,725 square feet in the quarter, decreasing vacancy in that office category to 16.2 per cent. On an annual basis, absorption was a positive 1.24 million square feet.
For the overall downtown office market, absorption in the fourth quarter was a negative 59,919 square feet. However, 2018 finished with positive absorption of 48,709 square feet, marking the first time since 2014 that absorption was in positive territory in the downtown core.
The overall downtown vacancy rate fell from 27.3 per cent in the third quarter of 2018 to 26.4 per cent in the fourth quarter.
“Due to high demand for small pocket space and consistent trend of flight to quality, there are only seven available options for pockets under 5,000 square feet remaining in Class AA product. Consequently, there are 86 available full floor options in Class AA buildings,” said the CBRE report.
The amount of available sublease space decreased for the sixth consecutive quarter and now represents 28 per cent of total vacancy in the downtown.
Overall, downtown inventory is just under 42 million square feet with 11.1 million square feet vacant.
– Mario Toneguzzi