Vacancy increased as new supply was added to inventory and demand for office space softened
The Alberta Natural gas price (AECO) monthly index trended from $4.34/GJ down to the $3.83/GJ range over the quarter, however still more than a $1.00 higher than the 2013 annual average of $2.99/GJ. Western Canada Select crude (WCS) differentials remained relatively unchanged over the quarter, hovering around $18.60/bbl when compared to West Texas Intermediate (WTI). However, North American oil prices lost about $12.00/bbl during the quarter. The slower global economy and production increases in OPEC and non-OPEC countries including Brazil and the U.S. are contributing to energy price erosion in the second half of 2014.
For Q3-2014 the 820,000 square foot Eighth Avenue Place-West (EAP-W) building was brought into the downtown inventory. The net effect of the addition was high positive absorption (or the increase in the total occupied space). However, the positive absorption was only due to the accumulated and banked absorption that had occurred in the building during its construction phase over the past 2 plus years. The positive absorption belied the fact that Q3-
2014 was a weak quarter in terms of the true demand for office space downtown. The square footage left behind as a result of Athabasca Oil Sands, Crescent Point Energy and Alberta Treasury Branches moving to EAP-W was the
primary cause of headlease vacancy increasing by 371,100 square feet. Available sublease increased however, only by 17,300 square feet. The vacancy rate increased during the quarter moving from the 6.1% recorded at mid-year to
Asking Net Rental Rates (ANRR) remained relatively unchanged however the gap between asking rates and the rates achieved in completed lease transactions widened in some cases.
Recent statistics compiled for the Western Canadian Basin Oil and Gas (O&G) producers indicates current and future increases in investment specifically for conventional O&G capital expenditure (Capex). However, Oilsands Capex remained and is forecast to remain flat through 2015. That said, a number of energy firms have reacted to the near term falling energy commodity prices by shedding surplus office space, halting expansion plans and moving capital outside the Western Canadian Basin.
2014 Real Estate Office Market Report, Calgary - Q3