Empty Floors, Shadow Vacancies New Norm for Calgary Tower Owners

Small Tenants

"Landlords now are forced to compete with somebody that’s looking for a very different return on their real estate cost," Mills said.

Some owners are already feeling the pain. Two-thirds of Dream Office’s space in Calgary expires in the years up to 2019 and only 13 percent has been picked up, according to company documents.

"With a smaller tenant size relative to most landlords, we believe this reduces leasing rollover risk as these tenants tend to be leaner, resulting in less headcount reductions during an economic downturn," Rajeev Viswanathan, chief financial officer of Dream Office, said by e-mail. The company is also aggressively pursuing smaller tenants, he said.

Artis REIT, which has 20 office buildings in Calgary with tenants including power generator TransAlta Corp., has about 823,000 square feet coming up for renewal between 2016 and 2018, or 13 percent of its total office portfolio, according to company documents. The occupancy of its towers in the city has fallen to 86 percent from 96 percent last year, financial filings show. The company wrote down the fair value of its properties by C$65 million in the third quarter after it lowered Calgary rents. Artis executives didn’t respond to requests seeking comment.

New Towers

In addition to the current glut of space, five office towers -- each with at least 430,000 square feet -- are due for completion in the next three years in Calgary, some only 36 percent leased as of October.

Olcheski, who’s worked in Calgary for about 10 years, is trying to remain optimistic amid the uncertainty. It’s going to be his best year yet for leases to smaller, non-energy tenants, for example.

"God only knows what’ll happen if oil doesn’t rebound," he said. "I try not to let that penetrate my mind."

--With assistance from Erik Hertzberg in Ottawa.

To contact the reporters on this story: Katia Dmitrieva in Toronto at edmitrieva1@bloomberg.net; Rebecca Penty in Calgary at rpenty@bloomberg.net To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net Jacqueline Thorpe.


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