Guy Huntingford is director of strategic initiatives at NAIOP Calgary.
What is NAIOP and what does it do?
Huntingford: NAIOP Calgary is a chapter of an international organization that’s headquartered in Washington D.C. NAIOP is the commercial real estate development association. It’s the leading organization for developers, owners and related professionals in retail, office, industrial and mixed-use real estate.
NAIOP members enjoy industry networking, education and social events. They also benefit from the advocacy work of the organization to ensure effective policies and legislation on their behalf. NAIOP promotes the advancement of responsible, sustainable development that benefits Calgary and the surrounding communities.
How has the economic downturn affected your members?
Huntingford: Almost all of our members have been affected by one or both of – the business property tax shift and the massive job losses in the energy sector that primarily hollowed out downtown. Many of our larger members (Oxford, Brookfield, Quadreal, etc.) have assets in the downtown core where there is 42 million square feet of office. These are the owners of the towers that have seen a 25 to 30 per cent decline in occupied space.
While it appears that we have reached the bottom, it will be a decade or more before that empty space is absorbed again. Even if the energy patch is revived, their business model has changed forever and they won’t need as much space as they once occupied.
Our members are looking for ways to attract different tenants and they would welcome any assistance from the municipality that helps in that regard.
What’s the membership’s thoughts about the city property tax and what impact has that had on them?
Huntingford: As suggested in the last question, the other thing that has affected our members more than any other challenge is the shift in business property taxes to businesses outside of the downtown. As the assessed values of properties in the downtown plummeted and the associated property taxes they generated plummeted as well, the city had to shift the burden of taxes to other businesses. This has created unknown hardships on all manner of businesses whose assessed values and corresponding property taxes have risen dramatically over the past five years.
To explain the inequities and the burden on business owners, consider that in 2018, over 496,000 residential accounts had a taxable assessment base of about $214.8 billion, against which municipal taxes generated revenue of about $838 million. Contrast this against only approximately 13,800 non-residential accounts (businesses) with a taxable assessment base of about $65 billion being asked to provide just over $1 billion in municipal tax revenue. This means that only 2.7 per cent of all property tax accounts (businesses) are being asked to shoulder the burden of over 54 per cent of the entire revenue generated for municipal property taxes, despite only owning 23 per cent of the taxable assessment base.
It would be fair to say that the property tax system had been relying on an ever-growing and appreciating downtown core where the bulk of the business property taxes were generated. When that gravy train ended abruptly, the flaws in the property tax calculation methods were revealed and now the city is faced with fixing the problem.
To date, they’ve been using reserves to help offset the huge increases to businesses outside the core, but this must end at some point and a new, equitable system must be put in place.
How are members dealing with a 25 to 30 per cent office vacancy rate downtown?
Huntingford: Firstly it must be said that our members are a resilient group. When faced with a challenge such as they have experienced in the downtown, they quickly re-engineer their business models. Many have had to quickly shed poorly performing assets and many, unfortunately, have had to rightsize their businesses, which has led to some staff losing their jobs. Many have spent large amounts of capital to reconfigure and upgrade their buildings in order to attract new tenants.
Helping to bring new business to Calgary is Calgary Economic Development, who were awarded a $100 million by city council to fund the search and incentives for diverse new businesses.
The challenge for the City of Calgary is that many of our member companies are national and international in scope and they can move assets to other better performing markets. To date this hasn’t happened to any significant extent, but it has by a few members and non-members. Continued but downward pressure on lease rates in downtown could see a ramp up of companies considering their options.
In the face of all the challenges, why are members still bullish on Calgary?
Huntingford: Many of our members have been doing business in Calgary for a long time. They like the market and they’re veterans to Calgary’s ups and downs. That isn’t to say that any of them have seen anything like this market, but they remain optimistic.
Calgary still offers a host of benefits to both business and residential owners, not the least of which is reasonably priced real estate (relative to other Canadian markets).
Calgary is still a destination market with an increasing population. It’s ranked fifth best place to live in the world by the Economist.
The municipality and other senior levels of government are still investing billions in Calgary from the Green line to the expansion of the BMO Centre, and most recently a new sports and entertainment district.
The bottom line is that many of our members believe in the market and have the resources to absorb the shocks they have experienced. Their long-term business plans still see Calgary as a place to build and grow their asset base.
Interviewed by Mario Toneguzzi, a Troy Media business reporter based in Calgary.