Shell Canada‘s move from Calgary’s Shell Centre to The Bow tower in 2023 will leave a 315,000-square-foot hole in an already challenged downtown office market as it reduces its total space in the city by over half.
In an e-mailed statement, the energy giant confirmed it will be taking up 242,257 square feet in The Bow, “which is a footprint that better reflects our Future of Work strategy post-COVID and aligns with our new hybrid work model.”
The company’s current head office is located at 400 4th Ave. SW, with 557,198 rentable square feet at Cadillac Fairview‘s Shell Centre.
The estimated timeline for moving into the Bow tower space is mid to late 2023, the company reports.
“With our lease expiring at Shell Centre mid 2023, Shell had the opportunity to explore the market. Many factors went into the decision; one of them was the general location – staying within the core was a key and early decision to enable connection to other companies, emerging technology hubs, and be part of the economic recovery post-COVID by supporting local businesses,” the Shell spokesman wrote.
“It also provides great amenities for employees and accessibility to transit and commuting options with the nearby river pathways.
“Shell Canada will vacate all current office space at 400 4 Ave SW when we relocate to The Bow.”
Oak Street, Deutsche Bank own Bow Tower
Private equity firm Oak Street Capital Real Estate purchased the iconic Bow tower in the heart of downtown Calgary, along with partner Deutsche Bank, from H&R Real Estate Investment Trust for $1.216 billion last year. The main tenant in the building is energy giant Ovintiv.
When asked to comment on the Shell transaction, a company spokesperson for Oak Street replied by e-mail: “At this time we have no comment.”
The 774-foot Bow, with its nearly two million square feet of space in the heart of the downtown, was a $1-billion project by energy giant Encana (now rebranded as Ovintiv) and H&R REIT and completed in 2012.
It sold for $608 per square foot to Oak Street and Deutsche Bank.
Under the complicated sale arrangement, H&R retained 15 per cent of net rent from the Ovintiv lease and the REIT retained ownership of the south block land.
Years ago, there were plans to develop a smaller tower on the south block, but that has been on hold due to the economic conditions.
H&R also retained an option to repurchase 100 per cent ownership in the Bow at the expiry of the Ovintiv lease in May 2038.
New challenge for downtown Calgary
Calgary’s downtown office sector continues to face challenges.
Progressing out of the pandemic, uncertainty with office utilization and hybrid work schedules have presented executives with challenges in the decision-making process not only with how much space is necessary, but how this space will be used, CBRE noted in its Q2 Calgary Downtown Office Report.
CBRE data indicates downtown vacancy rose by 90 basis points from the first quarter to 33.7 per cent, a historic high, with 380,000 square feet of negative absorption in the quarter.
According to a CBRE Research Occupier Sentiment Survey conducted in the spring of 2021, nearly 90 per cent of large companies believe a hybrid work policy will be the new norm.
“As a result, businesses are moving away from the model of ‘one person per one desk’ and towards activity-based work, meaning that the physical office is recalibrated and priority is given to collaboration spaces and spaces that inspire social connection amongst workers.
“This strategy allows employees to choose from a variety of settings and the one best suited to the task at hand. Other companies are electing to shrink their office space footprint by creating ‘hot desks’ or hotelling for employees who elect to work with a flexible home/office schedule,” the CBRE report states.
“Despite negative fundamentals and a further increase into uncharted vacancy territory, there are positive signs and a sense of cautious optimism in Calgary’s downtown core.
“Large-scale downsizing events have overshadowed activity levels that have reached pre-pandemic levels, in part due to burgeoning industries such as technology. Landlords that have made capital upgrades to older buildings such as facelifts and increased amenities are outcompeting landlords that have sat idle.”
More leasing at the Bow
According to the Cresa Q2 Calgary downtown office report, Gran Tierra has also leased 76,000 square feet of available sublease space in The Bow.
“Recently, it was publicly reported that Shell Canada completed a transaction in The Bow tower. As we understand it, Shell has committed to approximately 200,000 square feet, or five floors, of sublease space from Ovintiv,” said the Cresa report. “This space was not previously placed on the market and therefore has not affected our vacancy rate.
“We anticipate the remainder of Shell Centre will come available in mid-2023 when Shell relocates to The Bow. Cadillac Fairview has confirmed that most of the space in Shell Centre will not be marketed until such time they have assessed its condition and how they will market the space next year.”
Cadillac Fairview has continued to upgrade the Shell Centre, which offers 31 storeys of class-AA office space, announcing during the summer it was one of 13 of its Western Canada properties to attain the WELL health and safety certification.
Cresa’s report indicated class-AA downtown vacancy in Calgary sat at 15.65 per cent across 21 buildings and close to 16.4 million square feet of space. Headlease space makes up 1.2 million square feet with another 1.4 million in sublease space.
The Bow has the highest amount of space available with 329,929 square feet of sublease space.