Office space

Downside of Calgary Downtown Residential Conversions?

Wendell Cox — Mon, 22 May 2023 14:22:16 -0400

The Calgary Herald reports that some office tenants are being forced out of their buildings in the city of Calgary’s program to convert office buildings to residential uses.

We had covered this program recently, noting that “that the City has adopted an aggressive program to reduce downtown’s office footprint. With 14 million square feet vacant, the city has adopted the “Downtown Calgary Incentive Program,” a goal of which is to reduce CBD office space by 6 million square feet by 2021. The purpose of the program is to encourage the removal of vacant office space in the downtown to help address vacancy rates and stabilize property values over the next decade.” The program provides subsidies to building owners undertaking conversions.

The Herald cites the case of one business that signed a sublease for space on April 12, just over a month ago. The company learned shortly thereafter that they would need to relocate before the end of 2023. Four years before their sublease was to expire.

Conversion of office buildings to residential may be the greatest hope for the survival of downtowns where until the pandemic, there were far more jobs than resident workers. The experiences cited in the Herald story could make downtown Calgary even less competitive with other office locations in the metropolitan area, as firms face uncertainty about being able to rely on agreed upon lease expiration dates.

Wendell Cox is principal of Demographia, an international public policy firm located in the St. Louis metropolitan area. He is a founding senior fellow at the Urban Reform Institute, Houston, a Senior Fellow with the Frontier Centre for Public Policy in Winnipeg and a member of the Advisory Board of the Center for Demographics and Policy at Chapman University in Orange, California. He has served as a visiting professor at the Conservatoire National des Arts et Metiers in Paris. His principal interests are economics, poverty alleviation, demographics, urban policy and transport. He is co-author of the annual Demographia International Housing Affordability Survey and author of Demographia World Urban Areas.

Mayor Tom Bradley appointed him to three terms on the Los Angeles County Transportation Commission (1977-1985) and Speaker of the House Newt Gingrich appointed him to the Amtrak Reform Council, to complete the unexpired term of New Jersey Governor Christine Todd Whitman (1999-2002). He is author of War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life and Toward More Prosperous Cities: A Framing Essay on Urban Areas, Transport, Planning and the Dimensions of Sustainability.

Meta (Facebook) Leases All Office Space in Austin's Tallest

Wendell Cox — Wed, 12 Jan 2022 19:13:58 -0500

The Austin Business Journal reports that Meta (former Facebook) has leased all 33 office floors of the under construction Sixth and Guadeloupe Tower, which is due to open in 2023. The building will be Austin’s tallest building, at 66 floors and a height of 873 feet and is located downtown.

This will make the building the fifth tallest in Texas, behind the Houston’s JP Morgan Chase Tower (former Texas Commerce Bank), the Wells Fargo Plaza, and the Williams Tower, the tallest building in the United States outside a central business district (located in the Houston Galleria). One downtown Dallas building is also taller, the Bank of America Tower, which ranks third in the state, following Wells Fargo Plaza.

The building is mixed use and will have 349 residential units. It will be interesting to see how many Facebook employees will be able to afford living in the building, which would eliminate physical commuting almost as much as remote work.

Downtown Austin is developing rapidly and now is indicated by Cushman and Wakefield to have about 13 million square feet of office space (before Sixth and Guadeloupe), about equal to Cincinnati’s strong central business district. In this regard, Austin is following earlier models of dense downtown development in Calgary and Charlotte.

Downtown Austin is experiencing a building boom, which as of 2022 will have opened 15 buildings 400 feet high or more since 2010, when there were only four. In addition to the Sixth and Guadeloupe Tower, there are a number of new residential buildings planned for the Rainey Street District, adjacent on the east to downtown.

Austin was the fastest growing among the 56 major metropolitan areas (more than 1,000,000 population) in each of the last two decades. From 2010 to 2020, Austin added 567,000 residents, a 33% increase. Austin attracted 337,000 net domestic migrants between 2010 and 2020. This is more than all major metropolitan areas except for Dallas-Fort Worth, which is three times as large, and Phoenix, which is twice as large. Most of the new Austin residents settled in the suburban counties, which accounted for about two-thirds of the metropolitan area’s net domestic migration.

For decades, Austin has been playing a larger information technology role. Meta lease, and the new downtown “Google Tower” (Block 185) add significantly to this development.

Downtown Calgary: Not Overbuilt, But Under-Demolished?

Wendell Cox — Mon, 10 Jan 2022 20:02:24 -0500

North America’s largest post-World War II central business district has just received unwelcome news (Note). Writing in the Calgary Herald, columnist Chris Varcoe (“Staggering $17B drop in value of downtown towers fuels search for solutions”) reported that downtown property assessments were down C$1.1 billion in a single year. This is a continuation of a long term trend, in which values of 160 properties dropped by more than two-thirds since 2015. Calgary, headquarters to much of Alberta’s oil industry, has been hard hit by the decline in oil prices and provincial oil production. Over the past year, part of the decline seems likely to be related to lockdowns and the general movement of many people to exurbs and farther.

Varcoe reported the present vacancy rate to be 34%, with five buildings “completely empty.” Ominously, an industry professional said: “The problem is we’re not overbuilt; we are under-demolished.”

Read entire article here.

Note: With the decline of transit and increased auto use, emerging large metropolitan areas have generally not built dense central business districts similar to their World War II predecessors. There are two notable exceptions, Calgary and Charlotte. Cushman and Wakefield indicates that downtown Calgary has about 44 million square feet of office space. This is about twice that of the second largest post-WW2 CBD, in Charlotte. Downtown Calgary has slightly more office space than downtown Philadelphia, with a metropolitan population about four times that of Calgary.

The Undead Suburban Office Market

Wendell Cox — Mon, 18 Nov 2013 15:04:46 -0500

The restoration of central city living and working environments has been one of the more important developments in the nation’s metropolitan areas over the past two decades. Regrettably, a good story has been exaggerated out of all proportion in the print, electronic and online media.

Exaggerating Core Population Increases: The rise of population in urban cores has been important, but it has too often been used to suggest the apparent, but fallacious opposite, suburban decline. In fact, the suburbs are hardly in decline, with 93.5 percent of major metropolitan area growth outside a 10 mile radius from city hall between the 2000 and 2010 censuses (See: Flocking Elsewhere: The Downtown Growth Story).

Exaggerating CBD Office Space Gains: Similar misinformation had been circulating about office space outside the nation’s CBDs (central business districts, or “downtowns”). Commercial real estate information company Costar’s Randyl Drummer recently described suburbia’s improving fortunes (See: Once Left for Dead, Suburban Office Making a Comeback).

“Some analysts wrote the obituary of the suburban office campus as downsizing companies shed millions of square feet, in many cases consolidating into buildings closer to public transit in urban centers.”

It’s just not happening, according to Costar research:

“Overall, the suburbs have garnered more than their usual share of leasing demand over the past two years, according to an analysis by CoStar real estate economists. Since the beginning of 2012, suburban markets have accounted for a whopping 87% of office demand -- which is 13% more than their 'fair share' based on the total market size compared with CBD office markets, according to data presented at CoStar’s recent third-quarter office review and forecast.”

Indeed, CBD leasing, at 13 percent of the total, is a full 50 percent below their current share of inventory (Figure 1). As of mid-2013, the suburbs accounted for nearly three quarters of the nation’s office inventory (Figure 2).

Costar cites strong suburban development in Raleigh’s Research Triangle, and further notes that:

A diverse set of markets that include Sacramento, San Jose, Austin, Kansas City and Charlotte have posted some of the strongest net office absorption among suburban markets.

This is despite the glowing publicity being given to core area development, especially in places like Charlotte and Austin.

The reality is that the monumental CBD towers dominating metropolitan skylines do not indicate downtown dominance. In fact, throughout the high income world, most metropolitan employment is outside CBDs. In the United States, typically 90 percent of employment is outside the CBDs. The suburban employment (outside the CBD) share is a bit smaller in Western Europe, Canada and Australia, but still averages approximately 80 percent or more.

The good news is that neither suburbia nor downtown is dead.