Not the City's role to help fill vacant downtown office space?

OK I've said it - "it is not the City of Calgary's role to help fill-up downtown's empty office space."  I can't believe nobody else has said this publicly. 

Regular readers will know I am a big supporter of our downtown and the important role it plays economically and culturally in defining our city. However, I strongly feel it is not the City's role to spend tax dollars to help fill empty office spaces.  

While I questioned the City's approving $10 million to help building owners  and managers look for ways to fill up their excess office space, I thought the additional $90 million approved in December was excessive.

As the the Executive Director of the Downtown Association, (which represents the 3,500+ downtown businesses) from 1995 to 2006, one of the things my Board of Directors were always adamant about was "you have to let the market decide."    

I hope the following helps put the current downtown office ghetto issue into perspective.

  The Conversation by William McElcheran, on Stephen Avenue Walk in downtown Calgary is Calgary's signature piece of public art. It epitomizes the importance of Calgary's downtown as one of North America's leading corporate headquarter centers. 

The Conversation by William McElcheran, on Stephen Avenue Walk in downtown Calgary is Calgary's signature piece of public art. It epitomizes the importance of Calgary's downtown as one of North America's leading corporate headquarter centers. 

Office Vacancy In Perspective

Is the downturn in the fortunes of Calgary’s downtown really as bad as we think? 

While the media often paints a bleak picture using the “one in four downtown office buildings are empty” descriptor, in reality there are actually no empty downtown office buildings. The 15 million square feet of vacancy is spread out over 100+ office buildings.

And in fact, there is very little risk any of Calgary’s major office property owners will go bankrupt as most are owned by large pension funds or large real estate corporations with deep pockets and diverse portfolios. 

  Historically Calgary's downtown has absorbed about 500,000 square feet of office space annually, which means if the economy returned to historical norms it will take 30 years to fill up the 15M sf of empty office space.   

Historically Calgary's downtown has absorbed about 500,000 square feet of office space annually, which means if the economy returned to historical norms it will take 30 years to fill up the 15M sf of empty office space.   

The current dilemma of too much vacant office space is the result of the investment and development community building 10 million square feet of office space over the past several years assuming continual growth of Alberta’s energy sector.  

Though it was an educated gamble that hasn’t worked in the short term, remember pension funds are long-term investors.

As they like to say, “It is a long-term game!”

In the meantime, Calgary's business community is enjoying some of the most affordable downtown office rents in years and it looks like they will continue to do so for many years into the future.  

And yes, there are fewer downtown workers and less tax revenue generated by downtown businesses than at the peak in 2014. However, our downtown remains relatively healthy, generating more tax revenue from downtown offices than perhaps any city in North America with a population under two million. 

In fact, there are significantly more people currently employed in Calgary’s downtown offices today than in Austin, Vancouver or Portland, all cities with healthy downtowns. Let's not blame all of downtown's woes on the empty office space.

Any city our size would love to have 30 million square feet of occupied downtown office space that we have.  

$100M City Help Fund

In June 2017, the City of Calgary approved $10 million dollars for Calgary Economic Development to help fill empty downtown office space. Then in December it approved another $90 million. In all, that’s one-tenth of a billion dollars to help fill up empty office space owned by investors with deep pockets!

  The dark side of Calgary's plethora of highrise office buildings is the City has became too dependent on downtown as a cash cow.  

The dark side of Calgary's plethora of highrise office buildings is the City has became too dependent on downtown as a cash cow.  

Calgary has several major commercial real estate brokerage firms with access to global market research and contacts to pitch Calgary’s downtown and its very affordable vacant office space as a place to open up an office.

It is their job to find tenants for the empty office space, not the City's.

These seasoned professionals knew there would be a gut of downtown office space with the new buildings coming on stream and have been researching globally for the past few years to identify and pitch Calgary’s downtown to new corporations of all sizes and in all sectors.

I am confident Calgary's real estate brokerage community has left "no stones unturned." 

More Business-Friendly

What I have heard from the business community is the City should be focusing on is creating a business-friendly culture at City Hall, where regulations are manageable and minimized, where the bureaucracy operates with a focus on getting things done and where the relationships with the business community are fair to everyone. 

  Calgary need to retool and reinvent our downtown for the 21st century.

Calgary need to retool and reinvent our downtown for the 21st century.

The City must become a better facilitator and collaborator rather than a barrier to business development and establish tax rates that are stable and viewed as fair for all businesses. 

In the minds of most business people today, the City fails on too many of these issues and is dysfunction in some.  

While the large corporations and property owners get all of the media attention small and medium size businesses are critical to Calgary's future wellbeing. 

Of Calgary's total businesses (58,870) in 2016, small business (businesses with less than 50 employees) accounted fro 95% (or 55,972). Calgary Economic Development website. 

RED Flag

Even before the drop in the price of oil and natural gas, major corporations were moving out of the downtown because of high rents, parking costs and better access to employees who lived mostly in the suburbs. 

In 2012, Imperial Oil announced it was moving its 3,000 employees to a new headquarters in Quarry Park and vacated its 850,000 square feet of downtown office space. 

In the same year Canadian Pacific Railway announced it was relocating its 1,000 employees to its Ogden Yards where it created a new 225,000 square foot head office.

Currently, ATCO is looking to move out of its 300,000 square feet in the Beltline to its new Lincoln Park campus. 

Backstory: In the late '90s, PanCanadian before it merged with Alberta Energy to become Encana was seriously looking at moving to Lincoln Park before deciding to build the Bow Tower.  Today Lincoln Park has become an attractive inner-city office park with anchor tenants like Brookfield Residential and ATCO. 

In fact, the Calgary GoPlan approved in the mid '90s actually called for the creation of mini-downtowns in the suburbs. The rationale was these downtown would be employment centres would allow more Calgarians to live closer to work and reduce the congestion on city roads and transit. 

Developments like Quarry Park, SETON, Currie/Lincoln Park University District/UofC/Foothills Medical Centre were all encouraged as part of decentralizing Calgary's employment base to help reduce traffic congestion and over crowding on transit. 

Jennifer Keesmaat, one of Canada's leading urban planners just last week tweeted "to reduce congestion we need to create a multi-centred city. We need to shorten the long commute by creating destinations closer to where people already live. Creating true urban place in the heart of the suburbs."     

This is exactly what Calgary began doing 20 years ago, unfortunately somewhat to the detriment of our downtown.  

  Imperial Oil moved its head office to Quarry Park a new 21st century master planned community in SE Calgary that includes 2 million square feet of prime office space, along with residential, retail and recreational amenities.  

Imperial Oil moved its head office to Quarry Park a new 21st century master planned community in SE Calgary that includes 2 million square feet of prime office space, along with residential, retail and recreational amenities.  

Last Word

While it is understandable that the Mayor and Councillors want to help fill up the empty downtown office buildings (they want the cash cow healthy again), in fact what they should be focused on is creating a more business-friendly culture at the city for all sectors of Calgary business community.

Calgary is facing a new economic reality that doesn’t warrant the City spending $100 million of tax payers dollars to help fill up vacant downtown office space.

As one senior downtown property developer and manager said, “You can’t fight the market!” 

Note: Given the $100M "Downtown Help Fund" is a done deal, my next blog will look at how it might be used to find other uses for downtown office space. 

If you like this blog, you will like these links: 

All Downtowns Must Reinvent Themselves

Calgary: Are We Too Downtown-Centric?

Calgary's CBD is unique?

Historic Downtown Calgary Postcards