The theme of Q3 was ‘cautious optimism’, with some activity taking place as tenants continued seeking the best-appointed spaces Calgary’s Downtown has to offer, but at a slower pace than during the previous quarter. The primary drivers of quarter-overquarter vacancy reduction were sublease space takeback and inventory reduction as several office-to-residential conversion projects under the City’s Downtown Development Incentive Program (DDIP) are underway or set to begin in the near future.
The success of the program and removal of several buildings – primarily B and C Class product – is key to reducing the disproportionately high vacancy rates in those classes which have been persistently in the low 30% to low 40% ranges for several years. Demand for space in B and C Class properties softened significantly in recent years as tenants sought higher-quality locations or were otherwise motivated to move as their buildings due to pending conversions. Either way, tenants have been finding that the AA/A spaces in demand are becoming more costly.