THE PAST REBORN

ANALYSIS: BELTLINE
Changing Expectations
Challenging times reward landlords
who are quick to respond
David Lees
Sales Associate,
Jones Lang LaSalle
The more proactive
landlords
in the Beltline
have reduced
their asking rates
by upwards of
15 per cent,
leaving the
current average
just under $18
per square foot.
CALGARY’S OFFICE MARKET has experienced
above-average volatility over the past few years.
Calgary has long been a cyclical market, but the ebb
and flow have historically been more elongated and
temperate. In recent years, however, the cycle has
been notably sharper.
Through the latter half of 2012, and into Q2 2013,
rental rates in A and B Class properties in the Beltline
had finally recovered and stabilized from 2011 lows,
and landlords appeared ready to settle in for two to
three years of a rising market. All signs pointed in that
direction — but the comfort was short-lived.
As the price of crude oil plummeted, losing half
its value from June 2014 to January 2015, tenants
began growing more and more cautious. This caution,
coupled with a number of layoffs throughout the city,
has resulted in a quick spike in vacancy in the Beltline.
Overall vacancy in the area has increased from 9.5
per cent in Q2 2014 to 12.3 per cent in Q1 2015 — an
increase of 29 per cent. Nearly as drastic has been the
drop in asking rates in the Class A and B categories.
The average net rental rate in Class B properties was
$20.72 per square foot in Q2 2014; since then, the
more proactive landlords in the Beltline have reduced
their asking rates by upwards of 15 per cent, leaving
the current average just under $18 per square foot.
On the other hand, the area’s reactive landlords are
quickly piling up vacant space.
Class A product in the Beltline remains sparse,
and it has not been immune to the market struggles.
Having received confirmation that Matrix Solutions
won’t be exercising its rights on further space in 11th
Avenue Place, Morguard finds itself facing 80,000 sq.
ft. of A Class vacancy in a downward-trending market.
Rather than wait for the market to recover, Morguard
will likely need to relax its $34-per-sq.-ft. net rent
expectations if it hopes to compete against Class A
properties downtown, which are currently quoting $28
to $30 per sq. ft.
Indications are that this market lag is settling in
for the majority of 2015. Further layoffs and capital
expenditure cuts are expected at major oil and gas
companies, meaning more sublease space is likely to
come online.
While office market conditions mirror those of the
last crash, the fact remains that the cause of this
current downturn differs drastically from those in the
past. The political and oil-centred nature of this dip
means its lifespan cannot be gauged through historical
examples. As a result, the safest play for landlords
continues to be a proactive approach. ■
The pulse of Calgary’s commercial real estate industry TM
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