The former Nexen Building in downtown Calgary. The 37-storey, 600,000-square-foot tower is completely vacant, a result of the region’s continuing economic downturn. (Mario Toneguzzi RENX)

It’s situation that has likely never been experienced in Calgary’s downtown office market. When energy company Nexen moved its operations to the Bow Tower last fall, the energy company left the site of its former headquarters completely empty – the 801 Seventh Building.

More commonly known as the Nexen Building, it stands 37 storeys tall and contains about 600,000 square feet. Every square foot is now available for lease.

Michael Gigliuk, vice-president, associate, with Devencore, confirmed that never in Calgary history has a building of this magnitude in the city’s core been entirely vacant.

During the early 1980s, the city struggled through an economic downturn that left several smaller buildings empty, but nothing on this scale.

Gigliuki is a veteran of the downtown office market in Calgary who is well-known for his research and knowledge of the industry.

He told RENX six downtown Calgary office buildings were vacant during that 1983 slump: Selkirk House, 220,000 square feet; the Western Union building, 74,000 square feet; the Alpine building, 52,000 square feet; Atrium 1 and 2, 109,000 square feet each; Petro Fina building, 150,000 square feet; and the Hanover building, 240,000 square feet.

Nexen Building opened in 1982

The total for those six vacant buildings was 952,000 square feet. Much of it was a result of energy giant Petro Canada vacating four of the buildings, ironically about 600,000 square feet: Atrium 1 and 2; Petro Fina; and Hanover.

“Just to give you some perspective, at that time the total inventory in 1984 in downtown Calgary was 25.4 million square feet and today it’s 44 million square feet,” said Gigliuk.

“The vacancy at that time was 19.4 per cent. Actually 1983 is when the vacancy peaked back then, at 22.3 per cent.”

Oil and gas company Nexen is a subsidiary of Hong Kong-based CNOOC Limited.

Nexen moved its headquarters near the end of 2019 from the corner of 7th Avenue and 8th Street S.W. to the 58-storey Bow skyscraper, taking up 290,000 square feet of sublease space from Cenovus Energy. The Bow is located at 500 Centre Street S.

The Nexen Building was designed by J.H. Cook Architects and built by CANA Construction for Novalta Properties. The tower, which is just shy of 500 feet in height, opened in 1982 as the headquarters of Nova Corporation.

Ownership of the Nexen Building is now comprised of five Calgary families and an Ontario-based pension fund group. Leasing inquiries are being handled by Century West Management Inc.

A spokesperson for Century told RENX no one from the ownership nor management group would be available for comment.

“Early signs of positivity”

Calgary’s downtown office market has been struggling since the collapse of oil prices in late 2014, which sent the economy into recession in 2015 and 2016.

Thousands of jobs were lost in the heart of the oil patch which led to energy companies, and those related to the industry, vacating huge amounts of space in the heart of the city.

Today, about five years later, the downtown vacancy rate remains at an extremely elevated level in the range of 25 per cent.

“Calgary’s downtown office vacancy rate remains very high, persistently over 20 per cent, as it has been since 2016. Recently there have been some early signs of positivity on the horizon as vacancy rates have been trending slowly downward over the past three quarters,” said Adam Legge, president of the Business Council of Alberta.

“We’re expecting to see some economic growth in 2020, but it will likely be very low, slow growth that is unlikely to absorb a considerable amount of that inventory.

“This ongoing market situation is leading to innovation and new ideas in Calgary real estate. Several commercial buildings have been repurposed as apartments, and many building owners have put forward new offerings and new rental models, like co-working.

“Calgary’s downtown is a unique system, even among cities of similar size. It is highly concentrated in a single and defined geographic area and it’s also uncommonly connected because of the +15 (pedestrian) network.

“This means that the overall health of that system is important and pockets of very high vacancy can be concerning.”

Other large blocks of space available

While having the entire Nexen Building vacant might be unique, having large blocks of vacant space is not new. Todd Throndson, managing director and principal of Avison Young, said other blocks of space in the 600,000-square-foot range have been available.

“There have been other large blocks of space that have been available to tenancies in the market,” he said. “Unfortunately we have a vacancy of over 20 per cent.

“So whether or not there’s a building that has 600,000 square feet or not, I don’t think it really impacts the marketplace in any way, shape or form.

“What it does do, is it does allow an opportunity for a larger-size tenancy to either consider it as an option for themselves or use it as leverage against the landlords because they’re going to have to be very aggressive to try and get a tenancy.”

Throndson said the location of the former Nexen Building will also be a factor for potential tenants.

“It’s in the West End. It’s not right down in the core. It’s not going to appeal to some of the tenancies that are in the core right now that would never consider a West-End location,” he observed.

“So they’re going to have to compete on a financial basis.

“But, it does allow an opportunity for any significant and large tenancy in the suburban marketplace to consider downtown.”

Downtown Calgary “fairly active”

Aly Lalani, executive vice-president/partner with Colliers International, said it is definitely rare to have a building of this magnitude be completely vacant.

“It’s a unique situation. I don’t know it speaks to the market at all. I’d say it would be unfair to characterize this as a sign of the market,” he said.

“We’re seeing quite a bit of activity in the market, a lot of activity from tenants outside of the downtown core whether that’s tenants located in the suburban Beltline market or tenants who are outside of Calgary who are considering Calgary.

“The downtown core has been fairly active. Last year we added the 600,000-square-foot building of Nexen to inventory. We added TELUS Sky to inventory and some bigger sublease blocks of space that came available.”

Lalani contended that, although the market ended the year with negative 177,000 square feet of absorption, it’s not indicative of the activity that took place.

“It’s active downtown and that trend will continue for 2020. The good news is that we have no new office supply coming to the market other than potential sublease blocks, which is a wild card that we can’t really plan for.”

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