In boon times and struggles, Calgary downtown office space has been a resilient dynamic. Supply, demand. Class AA, A, B and C inventory, vacancy and absorption have always been key factors.
This year is different. While the traditional commercial real estate factors vacancy and absorption still drive the Calgary downtown market, commercial real estate is dealing with influential new components. Mergers and acquisitions (M+A). The erratic post-pandemic return to a five-day week and the ways remote work is reshaping the workplace. Downtown real estate embracing housing with Calgary’s popular residential conversion trend. And business jitters about economic uncertainty sparked by recent tariff and trade war worries.
The downtown commercial real estate overview tells the tip-of-the-iceberg story.
While Q2 stats are still being crunched, according to Avison Young’s most recent Calgary Office Market Report, after a strong 2024, Q1 2025 showed subdued activity due mostly to economic uncertainty. The Report tracks that although Q1 was a “modest” quarter with negative (179,503 sq. ft.) of absorption citywide, tenants were active, although a lack of “pen to paper” led to a slight increase in the overall vacancy rate.
Ian Huston, managing director of Colliers Calgary points out, “The downtown office market reported steady leasing activity in Q1, with approximately 58,000 square feet of positive net absorption, mainly from demand in the AA and A Class markets. The A Class market reported 73,000 square feet of positive net absorption, driven largely by the University of Calgary securing 180,000 square feet in the recently renovated 801 Seventh building (formerly the Nexen Tower).”
He adds that Q1 closed with an overall vacancy rate of 27.14 per cent, reflecting a marginal decrease of 66 basis points year-over-year. B Class vacancy fell to 33.2 per cent, its lowest level since Q3 2016, “mostly because certain tenants continue to be price sensitive and favour lower priced real estate. The Atrium I and II office buildings, along with Five Ten Fifth, were removed from inventory and are slated for conversion, reducing total supply by approximately 315,000 square feet.”
Greg Kwong, CBRE’s executive chair for Alberta explains, “Overall, vacancy has been flat from the end of 2023 until recently, with -494,000 sq. ft. of net absorption. The market has been particularly prone to pressures from a handful of large tenants causing negative net absorption, including several giving back large pockets of space and M+A activity returning additional space. The continued removal of inventory for conversion projects has managed to mitigate upward pressure on vacancy rates.”
Downtown Calgary’s current commercial real estate market underscores traditional differences between demand for AA, A, B and C space. “There was -249,000 sq. ft. of net absorption for Class B and C combined, since the beginning of 2024,” he says, as demand continues to flow to the top of the market.
“Overall Class B inventory continues to decline, partially due to buildings being sold for conversions. Other Class B buildings have landlords investing in amenitizing their buildings, improving common space and building out show suites to remain competitive in the market. Other landlords, who are unwilling or unable to effectively upgrade their properties, are seeing their older buildings becoming increasingly irrelevant in the leasing market, due to being too outdated for current demands.”
Leasing professionals are also factoring-in a quirky, new but significant aspect into their traditional hit list of commercial real estate drivers. The need for space in Calgary’s re-imagined workplace.
Many (not all) Calgary tenants have resumed business as usual and are enforcing a five-day in-office work week. The relatively new and limitless work-by-remote trend options are transforming the need for office space, but Calgary’s downtown market is mostly reporting pre-pandemic levels of occupancy.
The energy and oilfield services sector is still the backbone of Calgary, making up a significant portion of overall larger occupancy, as well as law and accounting firms. Smaller pockets of office space tend to be filled out by firms there to service the energy sector, with some additional growth in niche technology and educational requirements.
And there is encouraging good news. Commercial real estate experts agree about downtown Calgary positivity, while they are reluctant to call it long term momentum or a trend.
The Avison Young report details positive signs of efforts to address the issue of Calgary’s underutilized office spaces.
Some examples include the collaborative project between the City and the University of Calgary to relocate the School of Architecture, Planning and Landscape into 200,000 square feet of space at 801 Seventh Avenue SW. The space will be used for teaching and research, demonstrating a forward-thinking approach to revitalizing dormant space in the downtown core. Meanwhile, the recent merger of Whitecap Resources and Veren Inc. announced in March is an example of consolidation in the energy sector being a trend for the downtown office market.
Kwong underscores that office/residential conversions are having a definite impact on down real estate. “Current vacancy rate is just above 30 per cent. If none of the conversions downtown had been removed from inventory (11 from the City’s Downtown Calgary Development Incentive, and five that exist/occurred outside the program), current vacancy would be above 33 per cent. Several more buildings are anticipated to be removed from Calgary’s inventory for the balance of the year, as the City aims for its goal of removing six million sq. ft. of office space.”
Ian Huston also emphasizes the commercial real estate importance of upgrading Class B and C space, or else!
“There has been a surge in building upgrades over recent years as tenants prefer higher quality, amenity-rich space. B Class buildings can either undergo substantial upgrades, or face a sale to be converted for residential, post-secondary or hotel use,” he notes. “The funding for the government incentive program is currently paused, although the messaging suggests an intention to continue with the program. So we can expect B and C Class inventory to decline further as conversions continue.”
Now, more than ever, industrial/warehousing space is a vital factor of Calgary commercial real estate. Stats show that industrial market has reached the end of a nearly four-year build cycle, when over 20M square feet of inventory was added to the market. Despite the abundance of new supply, vacancy remains at roughly four per cent, reflecting demand for Calgary industrial space keeping pace with new supply.
Even in the rollercoaster world of Calgary commercial real estate, some things are challenging and frustrating because they are beyond control. Like economic uncertainty.
The facts and figures show that demand for high-quality office space remains robust, making the supply of premium spaces tight, as it drives up the costs for tenants seeking to upgrade and leads many to carefully evaluate their options before making a move.
And the economic uncertainty triggered by the recent tariff and trade war crisis management matters – a lot.
The Avison Young report highlights the caution: “In this environment, older buildings have a unique opportunity to remain competitive by investing in capital improvements to enhance the quality of their spaces.
But with office construction at historic lows and no significant new inventory expected soon, the market faces additional pressures from a projected three per cent rise in construction costs driven by tariffs. The added pressure of economic and political uncertainty is prompting many companies to prioritize lease renewals over relocations or upgrades, contributing to a slowdown in leasing activity.”
