Sky-high vacancy rates challenge remaining downtown businesses

CALGARY – An estimated 35,000 layoffs in Alberta have drained Calgary’s power towers of workers, leaving many floors sitting empty.

The vacancy rate for office space in the core rose from 6.5 per cent in November 2014, to 14 per cent a year later.

It’s the highest commercial vacancy rate in the city’s centre since 2010.

“Where it hurts is where you’ve got a smaller landlord that loses too much, and he’s got too big a mortgage,” said Bruce Finnegan, president of B. Finnegan & Associates.  “It just ends up going back to the mortgage company and they sell it to somebody new.”

Finnegan appraises commercial real estate for pension funds and law firms.

He said towers are already starting to change hands, but bigger building ownership groups with deep pockets will ride out the rough economy.

Downtown office leasing prices have fallen by about 25 per cent since November 2014, from $32.63 per square foot to $21.96 in November 2015.

Sub-leasing and re-negotiation of leases is now common.

“The landlord has to decide — should he hold the tenant to the full rate, or should he buckle and keep the tenant, let him pay what he can?” Finnegan said.  “Usually, they’ll go for the latter rather than get into a situation where their hold on the property could be jeopardized by vacancy in the building.”

The loss of so many downtown workers is also affecting businesses that serve the office crowd.

At the downtown Jalapeno’s Mexican Grill, owner Douglas Hernandez builds giant, 2 lb. burritos, but the biggest bite he’s seen lately is to business.

The restaurant relies heavily on the office crowd lunch rush.

“We used to have a lot of regulars that are coming in every week – two, three times a week,” said Hernandez.  “They don’t come anymore.”

Everything at the independent eatery is cooked from scratch, so labour costs are higher. Hernandez had no choice but to adapt.

He said he’s working extra hours to cover for an employee that he was forced to lay-off. He’s also changing his menu to offer smaller dishes at a lower price.

“We are very optimistic about it — I don’t want to be pessimistic because it doesn’t help anyway,” Hernandez said.

The Calgary Chamber of Commerce proposed another option Tuesday. It is now urging landlords and their tenants to sublease empty floors or offices to artists, as studio space.

“We think that this could be an offset to some of the expenses associated with carrying an empty space,” said Scott Crockatt, with the Chamber.

“It could be a way to give back to the arts community as well, and create some cultural vibrancy in our city.”

‘Artists in the Workplace’, is a partnership with Calgary Arts Development.

Businesses can identify themselves as having space available, will be matched an artist or organization that’s a good fit.  They can choose to solely provide space to work, or support and engage with an artist-in-residence.