When the iconic The Bow tower was conceived and built at the height of an energy boom, it was a symbol of Calgary’s status as a key economic driver in the country.
Some people even made note of its geographic location and the symbolism behind that – across the street from the Petro Canada tower which, to many Calgarians, remained a symbol of the federal government and its much-despised National Energy Program (NEP) in the early 1980s – which for a time gutted Alberta’s oil patch.
The 774-foot Bow, with its two million square feet of space in the heart of the downtown, was a source of pride for the city, a reflection of how far it had come from those dark days of the NEP. The $1 billion project by energy giant Encana (now rebranded as Ovintiv) and H&R Real Estate Investment Trust, was completed in 2012.
For years it was the tallest building west of Toronto.
Calgary economy continues to struggle
However, in recent years an extended string of economic blows has resulted in The Bow having one of the highest vacancy rates of the 23 class-AA office buildings in downtown Calgary. And in a city with a near-30 per cent office vacancy rate (all classes), that is significant.
Under the complicated sale arrangement, H & R will retain 15 per cent of net rent from the Ovintiv lease, which is a major tenant in the Bow, and the REIT retains 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 retains an option to repurchase 100 per cent ownership in the Bow at the expiry of the Ovintiv lease in May 2038.
“The Bow tower remains a significant, iconic tower in our city given it was built at the height of the oil and gas markets and is reflective of our city’s status at that time,” said Todd Throndson, the managing director and principal, office leasing, for Avison Young in Calgary. “It is a strong reminder of our historic roots in energy, symbolizing the earlier success of Encana, for which this building was first constructed.
“It remains an attractive part of the downtown Calgary landscape.”
The Bow tower vacancy at 33.9 per cent
Today, The Bow tower has one of the highest vacancy rates in the city for class-AA office space. According to CBRE research, The Bow’s vacancy sits at about 33.9 per cent including 645,000 square feet of sublease space which is currently available – 529,000 square feet from Cenovus and 116,000 square feet from Ovintiv.
Major tenants include Ovintiv with 840,000 square feet, CNOCC/Nexen at 181,000 square feet, Teck Resources at 72,000 square feet and CIBC at 62,000 square feet. Calgary Economic Development also has its headquarters in the building.
Cenovus used to be one of the major tenants, but vacated the tower in 2019 for nearby Brookfield Place, which at 810 feet and 56 storeys is also now Calgary’s tallest tower.
According to CBRE, there are six class-AA office towers in downtown Calgary with higher vacancy rates than the Bow as of Q2 2021; 707 Fifth, 60.1 per cent; Devon Tower, 44.5 per cent; 240 Fourth, 42.5 per cent; Livingston Place-South, 40.8 per cent; Livingston Place-West, 38.9 per cent; and Telus Sky, 34.3 per cent.
Greg Kwong, executive VP and regional managing director for CBRE in Calgary, said the Bow Tower has been one of the top-25 buildings in the world.
“It was all good news when it was announced,” Kwong said. “Plus, it took a portion of the downtown core that was really, I would say, no man’s land east of Centre Street. No one had ever built there. It was just Chinatown.
“It just opened up a whole part of the downtown core.”
However, a series of unfortunate circumstances has led to the tower’s elevated vacancy rate and decline in value, including the collapse of oil prices at the end of 2014 and the loss of Cenovus to Brookfield Place.
The ongoing COVID-19 pandemic and related slowdown in Canada’s economy have also contributed to the overall lack of demand for office space in downtown Calgary.
More asset sales likely in Calgary
Matt Rachiele, senior vice-president, investment sales with Colliers in Calgary, said the Bow Tower was originally a statement to the world.
At the time not only Encana, but the entire city, was on the map from a North American and global perspective as being a leader in oil and gas production.
“That building pre-dated the split that was going to ensue years later (between Encana and Cenovus) but it was certainly our shining star at that point in time,” said Rachiele.
“To have a AA asset like this trade is I think more indicative of broader activity that is percolating in the market right now across all asset classes and this was just a very large simpler to understand opportunity that has been batted around as I understand it for several years.
“There’s been a number of interested prospective buyers for it over the course of time and it just clearly made sense for the vendor at this point in time to do something.”
Rachiele said there is still a significant amount of activity circulating in the market. He believes this will be the first of several transactions to occur across the class-AA, A and even B categories through the end of the year and into early 2022.
“We’ve seen a dramatic pickup in interest by institutions both south of the border and abroad,” he said. “Abroad is mostly out of Europe. I would say that Oak Street is but one of many that are looking for opportunities in the city at this time.”