Oxford Properties Group has tackled the elevated downtown Calgary office vacancy rate by investing about $40 million to redevelop its flagship four-tower Bow Valley Square complex in the heart of the city.
That multi-million-dollar initiative has added a number of amenities including a tenant lounge, bocce ball lanes, ping pong tables and beehives, as well as modern co-working spaces in an effort to build a community and attract tenants.
The strategy is working.
Since the oil price collapse of late 2014, Calgary’s downtown office market has struggled. Recessions in 2015 and 2016 sent thousands of downtown workers in the corporate offices of the oilpatch to the unemployment ranks as the amount of empty spaces in those skyscrapers soared.
Today, that vacancy rate still hovers in the 25 per cent range with no light at the end of the tunnel.
Bow Valley Square at 85 per cent occupancy
However, David Routledge, vice-president of real estate management west at Oxford Properties, told RENX office vacancy at the 1.4-million-square-foot Bow Valley Square is about 15 per cent.
“We embarked on the second big phase of the redevelopment of May 2016 which was the exterior of Bow Valley Square. We really looked at it as an investment in the property to future proof it and make it contemporary and modernize a bunch of features,” said Routledge.
“As that process evolved, we started to look in a thoughtful and thorough and strategic way at the property and think hard about amenitization and where the workforce was going, where technology was going and how people were working.
“We’re actually really, really pleased with where we are. We’re sitting at about an 85 per cent occupancy level in the office component. And, you have to compare that to the overall market. . . . We’re also getting great traction in the marketplace.
“We’ve done 160,000 square feet of leasing year-to-date this year and about 85,000 feet of that is new tenants to the project.”
Bow Valley Square was built in phases between 1971 and 1981. The four towers are 17, 39, 32 and 37 storeys, respectively. There are also about 100,000 square feet of retail with about 50 shops and services.
The redevelopment of Bow Valley Square is a pilot project for Oxford Properties Group, the global real estate arm of OMERS. Elements of what was done there could be rolled out to other Oxford Properties in Calgary and elsewhere.
Oxford’s 4.5M square feet of downtown Calgary office
Oxford owns a platform of about 4.5 million square feet of office space in downtown Calgary including the Eau Claire Tower, Centennial Place, Devon Tower and Millennium Tower.
“We also thought that Bow Valley Square, which is kind of like a city within a city, there’s such great amenities here that smaller tenants would gravitate to the project and that thesis has proven true,” said Routledge.
The redevelopment of Bow Valley Square includes:
* a recently completed exterior renovation;
* the introduction of Oxford’s flexible office and co-working solution, OxWorx, which occupies two floors of one of the office towers and is 90 per cent leased;
* a recently completed HUB Tenant Lounge;
* first-class fitness facilities;
* a five-meeting-room conference centre;
* a park site and rooftop patio featuring BBQs, bocce ball, ping pong and beehives; and
* 50 shops and services.
When asked how important it is in today’s commercial real estate market to do the types of upgrades Oxford has done, Routledge replied: “We think it’s critically important. It’s a very, very competitive marketplace. Vacancy is sitting at approximately 25 per cent.
“Tenants are demanding more. The workforce is changing. Technology is changing. We just think we need to shift the focus on the property. We need to amenitize the property. We need to give people the environment they’re looking for.”
Tenant lounge, OxWorx co-working space
The HUB Tenant Lounge, for example, features a sports area complete with foosball, ping pong, a pool table and gaming systems; a collaboration space with board games, cable TV and events for customers (including weekly coffee, wine and beer socials); and an unplugged zone for customers to unwind in a peaceful, soundproof library space.
OxWorx requires a minimum three-month term for tenants and then after that it’s month to month.
Other landlords in the Calgary market have also developed co-working downtown office spaces to meet a growing demand.
“I think it’s a trend because of technology and the way people are working together, collaborating. You hear the expression ‘gig economy’ all the time and a lot of marketing firms are working in that manner,” said Routledge.
“Specific to Calgary, the oil industry for many, many years has had a lot of contractor job employees and I think those folks will be customers of the various co-working platforms that are coming to Calgary or are in Calgary.
“In our project, we’re seeing a lot of marketing, financial services, small companies, who just want to be at this kind of a complex with the amenities that we’ve got here.”
Paul Provencher, senior vice-president of NuWave Industries, said the company, which works in the area of decommissioning and cleanup of oil and gas assets, likes OxWorx. The president and CEO has an office next to Provencher. The vice-president of business development also has an office there.
“What we liked about this space was that it was new, it was clean, it was bright, it had great furniture, it had lots of flexibility and we didn’t want to be just our siloed group,” he said. “We wanted to be able to come into a space and meet other people that may or may not be part of our industry.”
Downtown office vacancy slowly improves
According to Avison Young, Calgary’s downtown office vacancy rate was 24.4 per cent at the end of the second quarter, down from 25.3 per cent in Q1 and from 26 per cent year-over-year.
The market also recorded its fourth consecutive quarter of positive absorption. That hadn’t happened downtown for the past seven years.
“The cumulative absorption for Calgary’s downtown office market for the first half of 2019 was 446,000 square feet. This amount of absorption is more than all of 2018, which saw a total of 400,000 square feet of positive absorption for the year,” said Todd Throndson, Avison Young principal and managing director of the company’s Calgary office.
“This high level of absorption is the direct result of three net new leases that were signed in second-quarter 2019 in Calgary’s downtown office market: Golder Associates relocated from the northeast into Stephen Avenue Place and WeWork signing two leases in The Edison and Stephen Avenue Place.
“These three leases are responsible for more than 50 per cent of the downtown absorption in the second quarter.”
Throndson said modest positive absorption is anticipated over the next 12 months.
“A collective sigh of relief arose from Calgary boardrooms following the announcement that the federal government had approved the Trans Mountain pipeline,” said Throndson. “However, until construction is completed and bitumen is flowing, skepticism will remain.”