Cadillac Fairview is divesting two of its non-core downtown office properties in Calgary.
The company recently listed for sale Encor Place for $21.5 million through RBC Capital Markets. Its building at 635 8th Ave. S.W. is also about to come onto the market, offering a total of over 620,000 square feet of space to potential buyers.
“There are a couple of assets that we've put up for sale in Calgary. There are two smaller assets there and that's simply because we've determined that there's no longer adequate growth in those two assets from our perspective so we put them up for sale,” Sal Iacono, the president and CEO of Cadillac Fairview, told RENX.
The asking price for 635 8th Ave. S.W. has not been revealed.
The divestment process for Encor Place, meanwhile, is still in early days.
“We just started the marketing about two weeks ago (on Encor Place), right after the holidays, so it’s premature to see any results yet," Iacono added.
Encor Place is listed by Jason Cottle, managing director of RBC Capital Markets Real Estate Group, and director Tosh Findlay.
Cadillac Fairview's Calgary office properties
Completed in 1988, Encor Place is a 29-storey, class-B office building encompassing 359,131 square feet that enjoys a prominent location at the southeast corner of the intersection of 7th Avenue SW and 6th Street SW. It is one block west of Eighth Avenue Place in downtown Calgary.
As the property is only 40 per cent leased, it represents an "exceptional" value-add investment opportunity, the listing states.
The list price of $21.5 million works out to $60 per square foot.
Encor Place is anchored by 68,577 square feet leased to Trican Well Service through June 2027. Other notable tenants include Cabert Waite law firm (14,167 square feet, expiring in October 2029) and Peace Hills General Insurance (10,000 square feet, expiring in September 2029), rounding out its three largest tenants.
Cadillac Fairview’s 635 8th Ave. S.W. building is a 26-storey, 264,000-square-foot tower also in the west end of Calgary’s downtown.
In addition to those two properties, Cadillac Fairview also owns two signature towers in downtown Calgary:
- Calgary City Centre, 36 storeys and 827,700 square feet; and
- Shell Centre, 33 storeys, 680,000 square feet.
It also owns two office buildings on CF shopping centre properties in Calgary, the Market Mall Executive Professional Centre and Chinook Professional Tower.
CNRL signs major lease for new space
According to real estate firm CBRE, the downtown office market saw its strongest year of net absorption since 2014 with a total of 415,000 square feet during 2023 and vacancy decreased in Q4 for a sixth consecutive quarter.
“The downtown market has become bifurcated, as the gap between demand levels of class-AA inventory and everything else remains significant. Alternative uses remain the key to reducing class-B and -C vacancy,” said CBRE’s latest downtown office report.
“The oil and gas sector remains financially strong and has shown steady demand for office space, but mergers and acquisitions in the industry remains a threat to office demand growth.”
It said a major lease transaction was completed with Canadian Natural Resources Limited (CNRL) leasing 650,000 square feet in the former Shell Centre and 340,000 square feet in 400 Third. When CNRL relocates in 2026, the firm will leave behind a comparable amount of space in Bankers Hall and TD Square – Home Tower, CBRE notes.
Greg Kwong, executive VP and regional managing director for CBRE in Calgary, said there is investor interest in downtown office buildings.
“But, it’s all coming from the private equity, private investor category on the capital stack,” he said. “We’re not seeing any financial institutions, REITs or anything like that coming into the market. It’s all high-net-worth families, private equity buyers that are looking, but there is interest.”
Kwong said the risk factor is enticing for the private investors with prices per square foot “so cheap.”
Wide variance in office vacancy rates
CBRE said class-AA inventory has a comparatively healthy vacancy rate of 15.6 per cent, or 9.2 per cent if strictly considering headleases, as tenant demand remains active.
Class-B and -C product sits at 41.7 per cent and 42.1 per cent vacant, respectively. These buildings collectively make up approximately 5.5 million square feet of the downtown’s 12.7 million square feet of vacancy.
CBRE said demand for class-B and -C buildings has softened substantially. Tenants are seeking newer, more centrally located and amenity-rich buildings as they evolve workplace strategies for the post-pandemic world.
Buildings that lack these characteristics are likely to see increasingly elevated vacancies. Class-A product also faces challenges, but the overall vacancy has been mostly concentrated in a few buildings with sustained elevated vacancy.
According to Colliers’ Q4 report, the total assessed value of downtown Calgary office buildings decreased from approximately $16 billion in 2018 to around $8 billion in 2023.
“There’s a growing pool of investors that are learning about the whole process of investing in these office buildings, some of which have pretty high vacancies," Graham Daniel, associate vice-president, investment sales for Colliers in Calgary, said.
“There’s been some early adopters that have gone in and run their conversion process and they’re taking advantage of the city grant money and those groups are still active, and there are groups from outside of town that are looking to kind of replicate that whole process, that whole model.”
Downtown conversions now at 1.4 million sq. ft.
According to Barclay Street Real Estate data, Calgary’s Downtown Development Incentive Program to convert office space to residential, has 11 projects encompassing 1,415,000 square feet.
David Wallach, broker/owner of Barclay Street Real Estate in Calgary, said the downtown office market is heading in the right direction after some challenging years.
“The indicators that I have, other than our report that shows that true vacancy is just shy of 21 per cent, are positive,” he said. “I look at three things - driving to downtown and out of the core, parking in the core and lunch time in restaurants. All of the above are very positive.
“You have to look at those indicators and not just read the reports about this square foot or that square foot. I think if we look at those day-to-day indicators they’re very positive. . . . Absorption is slowly moving forward, we see rates going up in the core. All indicators are it’s in the right direction.”
He also said private investors are “betting on downtown Calgary’s revival.”