The oil price downturn is creating a building opportunity for commercial real-estate developers in Calgary, home to Canada’s petroleum industry, rather than deterring investment, Mayor Naheed Nenshi said.
“Our downtown commercial market is very strong and we’re getting a lot of folks saying they had been priced out of Calgary and now here’s their chance,” he said Monday in an interview at Bloomberg’s headquarters in New York. “I’m told by these very, very large skyscraper builders and commercial property developers, mostly backed by pensions, that they are patient money, and they make their money by building at this point in the cycle.”
Nenshi has recently met with a property developer planning a new C$600 million ($478 million) tower for the city, and there are two or three others with similar plans, he said, declining to name the investors.
Skyscrapers including the Bow, designed by British architect Norman Foster and the tallest building west of Toronto, have sprouted in Calgary’s downtown in past years as an oil boom supported a surge in employment. While the slide in crude prices over the past year resulted in thousands of job losses in the city, commercial and residential construction has continued as the population grows.
Last year, Calgary’s population increased by 40,000 people, contributing to a 16 percent gain in the past five years to about 1.2 million, while the growth in energy, manufacturing and retail jobs kept unemployment below the national average. About a third of Calgary’s $116 billion economy is dependent on the petroleum industry, down from about 55 percent 20 years ago, Nenshi said.
Calgary’s commercial vacancy rate has risen to about 11 percent, a “healthy” level, after years of tenants having a difficult time finding space, he said.
Cushman & Wakefield’s latest quarterly report showed Calgary’s office vacancy at 8.5 percent in the first quarter, up from 6.3 percent last year. The rate compares with 7.7 percent in Toronto in the first quarter. Vacancy in Toronto’s financial core is the lowest in the city at 4.8 percent, compared with 9.8 percent in Calgary’s central core, Cushman and Wakefield said.
The city expects the value of building permits this year to decline to C$5 billion from C$6.5 billion in 2014, according to Calgary Economic Development, a city agency.
“We’re now moving in a world where there’s a little bit more breathing room,” Nenshi said, adding that he sees little chance of a property bubble, either in Calgary or in other cities in Canada, including Vancouver or Toronto.
More than five years of rising oil prices spurred thriving sales of million-dollar trophy homes in Calgary and a doubling of home prices in the last decade. The city is unlikely to develop a residential market similar to Vancouver or Toronto where prices are pushed higher by limited land.
“We’ve been characterized by what a lot of people will call a suburban sprawl model,” Nenshi said. “We have not yet attracted the foreign investors trying to get their money out of somewhere or who are seeing this as a long-term play.”
The oil industry will likely have a “difficult” second quarter in the city and see a recovery in the third, he said. In the meantime, Calgary is looking to the finance, technology and transportation and logistics sectors to support growth.
Calgary needs to continue attracting people outside the country to ensure that the city maintains its economic growth and remain and innovative place, Nenshi said.
“For my city to be successful, I need that top graduating engineer or that terrific young artist, from Shanghai, or Mumbai, or Dubai -- or anywhere else that ends in ‘i’ -- to think of following her career, investing and having a great life in Calgary,” he said.