Oil and gas industry sets Calgary's skyline ablaze
Astute developers know that as the oil and gas industry grows, so does Calgary's office market. With a 0.6 per cent vacancy rate, Calgary currently holds the world record for the tightest office market. Randy Magnussen, senior VP of Bentall Real Estate Services, says when oil and gas prices started to rise in 2004, it was time to do some marketplace analysis. "We tried to correlate downtown office vacancies with the historic rise and fall of oil and gas prices," he explains. "Historically what's happened is that the demand for office space has gone up [when oil and gas prices rise]. So we determined that it was an appropriate time to look at starting a building."
With today's net average downtown office rent at $37.38, Bentall's decision was appropriate indeed. "We went through all the due diligence of getting prices and testing the market," he says.
In 2004, Bentall announced it would construct a $130-million, 440,000 sq. ft office building in downtown Calgary.
When construction began in spring 2005, Livingston Place was the first Calgary office tower in 20 years to begin construction before being substantially leased. Not even six months later, 180,000 sq. ft (about 45 per cent of the building) was leased to three major tenants: Pengrowth Energy Trust and sister companies Marsh Canada Limited and Mercer Human Resource Consulting Limited.
"The market has been tightening, and our challenge as we've grown has been to keep our people together," Jim Kinnear, president and CEO of Pengrowth Energy Trust said in a press release. "An estimated 175 Pengrowth employees will work from five contiguous floors at Livingston Place starting in the summer of 2007."
The successful leasing spurred on construction of phase two of Livingston Place, a second 21-storey office tower. Completion of the south and west towers is scheduled for the spring and fall of 2007, respectively. In total, Livingston Place will add 840,000 sq. ft of AA class office space and about 500 parking stalls to downtown Calgary.
In the west tower, anchor tenants include the likes of Provident Energy and Shell. According to Magnussen, both buildings will be fully occupied by tenants by the end of 2007.
Named after Sam Livingston, one of Calgary's most colourful settlers, Livingston Place will be at the upper end of the office market. It will feature the largest area of green space linked to any downtown commercial building in Calgary. Top materials such as high-performance glass and Canadian granite are detailed in interlocking forms to emphasize a vertical expression for the towers.
How is construction coming along in the overheated economy? "We're on track, on budget, and on schedule," he says. "We have good firms on board." The project designer is Gibbs Gage Architects; the general contractor and project manager is EllisDon.
He adds that EllisDon accepted the job with a mandate to get the project done on time with a guaranteed maximum price. "When we started our project, there hadn't been the rapid escalation of prices we've seen recently. Fortunately, we started the building early enough that we avoided some of that."
In addition to Livingston Place Phases I & II, there are four other major projects currently under construction, including Centrium Place, the Homburg-Harris development, Opus 8, and Bankers Court.
Scheduled for completion by spring 2007, Centrium Place, will bring another a 225,000 sq. ft of office space to downtown Calgary. With its virtually column-free floor plate, the building contains 15 floors ranging from 16,300 to 17,600 rentable sq. ft.
As with the other buildings currently under construction, Centrium Place will enhance Calgary's skyline with its contemporary styling and architecturally clean design. Its corner entrance and striking light sculpture that extends the full height of the building will deliver extraordinary curb appeal.
Though shrouded in secrecy, there's one well-known fact: EnCana's 2 MMsq. ft complex will not only deliver curb appeal, it'll deliver major skyline appeal as well. The scuttlebutt is that the tower, to be designed by British architect Norman Foster, will become the largest office tower west of Toronto. Construction will begin in 2007, with a completion date of 2010.
According to CB Richard Ellis's MarketView Calgary Downtown, EnCana and four other proposed developments total 5.4 MMsq. ft. The developments include City Centre (950,000 sq. ft), Penny Lane I (750,000 sq. ft), Penny Lane II (950,000 sq. ft), Tower Centre West, (400,000 sq. ft), and the ATCO building (880,000 sq. ft).
Grant Symon, president of Calgary Construction Association, concedes that with the office market starting to bubble, there are numerous projects underway-and more to come. "The industry's already busy, and there's potentially even more work happening. Yes, we're concerned about the availability of labour." He adds that apprenticeships will bolster the existing labour force, easing some of the pressure.
The second-quarter Calgary Economic Report predicts that due to ongoing or planned construction projects, the labour market in Calgary will remain tight, at least until the end of 2009. That could bring about delays in major construction projects.
According to Calgary Office Quarterly: Second Quarter Highlights 2006, a report put out by J.J. Barnicke Calgary Inc., over the next three years, 3.0 MMsq. ft of spec construction will be added to the market, but the "potential pent-up demand suggests that there may still not be enough supply to satisfy market demand."
The report also states that of the office space under construction throughout Calgary, 78 per cent of that space is already pre-leased. In the downtown market, 92 per cent of this space is already leased.
Calgary Economic Development's recent report concurs that Calgary's supercharged downtown market continues to drive demand for the suburban office market, with the vacancy rate dropping to a record low of 3.6 per cent. About 72,000 sq. ft of suburban office space was added during the second quarter with the addition of Two Executive Place and the redevelopment of Citadel West (formerly the Confederation Building).
Despite a number of interesting projects in the suburbs, just about everybody loves a skyline full of architectural feats. The latest designs receive rave reviews for their panache.
"The levels of architectural detail and aesthetic appeal seem to be getting better each time," observes Magnusson. ""There's increasing pressure on developers to produce buildings that are representative of modern Calgary."
With two projects well underway, Bentall's eager to build on that success with another office tower development located at 302 4th Avenue SW. Completion of the 880,000 sq. ft, 38-storey office building is scheduled for late 2009. The total cost of the project will be close to $300 million.
Magnussen predicts that the downtown demand for office space won't be met until 2010. "On a go-forward basis, everybody's going to keep building until someone builds one too many," he concludes.