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Varcoe: Pandemic and recession continue to weigh on the value of Calgary office towers

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“A broad-brush office building is worth less today than it was a year ago,” said Greg Kwong, CBRE regional director

Article author:

Chris Varcoe • • Calgary Herald

Release date:

October 09, 2020 • • October 9, 2020 • • Read 4 minutes The office towers in downtown Calgary can be seen from the Calgary Tower on Thursday, June 11, 2020. Photo by Gavin Young / Postmedia

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After several difficult years in which downtown office values ​​collapsed like a sandcastle on the beach, 2020 should be the year that the tide finally turned.

A nasty multi-year tax shift caused by the depreciation of the towers in downtown Calgary appeared to be coming to an end, city officials said in January.

Nine months fast forward.

With a plunge in oil prices, a global pandemic, and fewer people working, shopping, or eating in the core of the city, don’t bet on stability returning to these ratings just yet.

“Office and retail properties in the city center are definitely declining year after year. Now the question is how much, “said Kyle Fletcher, executive vice president of the Altus Group real estate research firm in Calgary.

This information will be released soon, but what is known so far is not promising.

A report by commercial real estate company CBRE Canada found last week that the vacancy rate in downtown Calgary rose to 28.7 percent in the third quarter, from 27 percent in the past three months.


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During the same period, the average net rent for class A office buildings fell by around nine percent. Fewer companies and fewer jobs in the energy industry have resulted in lower demand for office space.

“A broad-brush office building is worth less today than it was a year ago,” said Greg Kwong, CBRE regional director.

“We actually recovered somewhat in the first quarter. . . in relation to office leasing and downtown building values. But then it just shut down. “

These economic factors are affecting the values ​​of residential and commercial property across the city as a deep recession hits the province.

ATB Financial released a report Thursday that predicts the province’s economy will contract 7.1 percent this year, before recovering about 3.3 percent each time for the next two years.

All of these forces will also have an impact on what happens next with the redistribution of local property taxes.

“There’s no question that commercial property is falling in value,” said Todd Throndson, general manager of Avison Young in Calgary.

After the oil price crash in 2015, more than $ 14 billion of value disappeared into downtown office buildings in four years, causing approximately $ 250 million of municipal taxes to be levied on other commercial properties during the city’s annual revaluation were.

While the tax burden on downtown skyscrapers was lowered, thousands of commercial property owners – and business operators – outside of the core rose sharply.


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In the face of a corporate tax revolt, the council shifted more of the municipal tax burden to homeowners.

The city council set the property tax rates for 2019.  Homeowners will experience a hike in Calgary on Monday, April 8, 2019 this year.  Darren Makowichuk / Postmedia The houses can be seen in front of the downtown Calgary skyline on Monday, April 8, 2019. Photo by Darren Makowichuk / Postmedia

It has been a painful journey to this point. And it doesn’t look like the ride is going to be any smoother.

The COVID-19 crisis has forced some small businesses to close this year. Oil prices remain low and unemployment high.

More and more Calgarians are working from home and more and more people are shopping online.

The annual valuation process, which is based on property values ​​as of July 1st, gets caught in this storm.

Last week, the city began giving commercial and apartment building owners the first glimpse of their expected estimates for 2021.

Some citywide dates are slated to go to a council committee next week. Acting city appraiser Eddie Lee confirmed that Calgary’s values ​​for both residential and commercial real estate have declined overall this year.

In the city center, office rents have fallen and vacancy rates have risen, he noted.

“What this will result is a general depreciation of the offices, but we’re nowhere near some of the previous years (declines) that we saw down as much as 32 percent in one year.” he said.

That means the violent tax swings in 2019 shouldn’t happen next year.

But there is one more complication caused by the coronavirus crisis.

While more office space is empty, the pandemic has hit retail businesses. In this category, the estimated values ​​for the 2020 tax year increased by three percent.


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Sales have improved in grocery stores and wholesale retailers this year, but businesses like hotels, restaurants, and tourism-related businesses are facing an unprecedented storm.

A closed sign is pictured in Bridgeland on Wednesday May 13, 2020. Photo by Azin Ghaffari / Postmedia

In the meantime, industrial properties are doing better with the strong demand for storage and sales space.

“We would expect taxes on industrial real estate to increase and taxes on indoor and retail real estate in general to be reduced,” Lee said of the sales-neutral valuation process.

Many Calgary business owners claim that one solution to this clutter is to have the City Hall cut spending significantly and curb potential tax shifts on commercial real estate.

Mayor Naheed Nenshi said the council was aiming for a “tax freeze or better” for 2021. Budget discussions are due to start in November.

“That’s what we have to do in this economy,” he said.

Nenshi noted that more people are now returning to work downtown, but he is still concerned about the impact of the economic slowdown on street shops that rely on pedestrian traffic.

“When people work downtown even fewer days a week, it becomes harder for the dry cleaning or downtown lunch counter to try,” he said.

Coun. Druh Farrell, whose community includes part of the core, said all of these headwinds underscore the need for further action by the council to encourage more people to live in the area and make it more vibrant.

“We know this is a long-term problem that requires a number of solutions,” said Farrell.

“If there is another tax shift, it only exacerbates the problem. But even if this is not the case, we still have a challenge ahead of us. “

Chris Varcoe is a columnist for the Calgary Herald.


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