Speculation. Positivity. Negativity. Guesswork. It’s all part of forecasting Calgary’s business climate. But with so many factors and variables, such strategizing is like the weather – it is constantly changing.
Although many business strategists have their own measures and formulas, the trend of commercial real estate (CRE), particularly downtown stats, has always been accepted as a telltale barometer of Calgary’s economy.
“An increase in downtown commercial office leasing usually signifies increasing levels of business confidence, that people are hiring again and moving forward with investment decisions,” explains Warren Phipps, real estate broker, co-founder of Mountain Park Real Estate and an EO Calgary member.
Despite the popular myth the downtown is all about giant corporations, small businesses significantly impact commercial real estate.
“When small business does well it can be seen as a direct reflection on the health of the economy,” says Jodena Rogers, vice president of corporate services at Emerald Management & Realty, and an EO Calgary member. “Businesses occupy space, make upgrades and lease improvements. They pay high rents. The true impact of small businesses shows when small businesses start to struggle. Commercial investors see receivables increase, vacancy is created, businesses fail and in some cases close, and tenants scramble to renegotiate the terms of their leases.”
As most Calgary business leaders agree, it’s ultimately a ripple effect. “Commercial real estate is definitely affected by the ups and downs of the Calgary and Alberta economy,” says Bob Sheddy, broker of record, owner of Century 21 PowerRealty and an EO Calgary member. “Clients often comment about how many ‘for lease’ signs they see. But after a focused search, they are often astonished at how few spaces actually fit their criteria.
“In boom times, this is even more amplified. In years like 2008, the market couldn’t build enough space to keep up to demand. The end result is that leasing rates and sale values rise. In 2013-14, the market was heating up to that same point before the oil price started its downward slide in the last quarter of 2014.”
“The Calgary CRE market has always largely been tied to the highs and lows of the oil and gas industry,” Phipps notes. “High oil prices drive business growth, which results in increased hiring levels and places increased demand for office space to accommodate the increased headcount.
“When oil prices drop, especially so severely, the reverse happens. It’s a function of supply and demand, intertwined with a critical global economic event.”
As Rogers underscores from experience, when the going gets tough, the tough get going. “During ups and downs, commercial landlords must be responsive to market conditions, remain competitive with lease rates and improvements, and stay on top with marketing strategies.”
Positivity laced with realism tracks the last half of 2017 and readies for 2018.
“Many businesses suggest it’s ‘the new normal,’” Sheddy says. “Accountants, doctors, service trades and other businesses are seeing growth.”
“In 2018, diversification is the key for Calgary business. And we look forward to the opportunities that come with a diversified Calgary,” adds Rogers.