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Intensifying for the Interim: Calgary Tenants Adapt to Space Crunch
March, 2007
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SOME PITFALLS WITH PROSPERITY
The staff lunchroom is often the first casualty in any attempt to carve out more working space within an office - perhaps adding to the hectic midday activity in downtown Calgary. Workers seeking to escape construction zones within their offices won't find much relief out on the streets.
"There is more traffic and there is more pedestrian traffic pretty much everywhere you go in the core. Restaurants are very, very busy," observes Maggie Schofield, Executive Director of the Downtown Calgary Association, which represents the businesses in a 120-block area. "Overall, I think the retailers have got to be delighted that there are a lot more people downtown. It's particularly noticeable at lunchtime because that's when people tend to shop or run errands. It's like Christmastime everyday."
Skyrocketing prices for parking are one of the most obvious signs of a downtown vacancy rate below 1%. In the summer of 2006, Colliers International's annual North American parking rate pegged the median rate for monthly reserved parking at $412.50, up from $302.50 one year earlier. The median daily parking rate rose to $19 from $13.75 in 2005. Analysts expect those benchmarks to be broken in 2007, particularly as new construction on several former surface parking lots takes supply out of the market.
However, once completed, new office towers will ultimately add to the downtown parking supply. Schofield also commends the discount prices now offered in many parking lots after 4 p.m. with helping downtown businesses attract patrons in the evening.
The retail vacancy rate has dropped in sync with office vacancies, and new office construction opens up potentially lucrative venues along the Plus 15 pedestrian walkway network that connects major downtown towers at the second storey level. "Retail space on the Plus 15 is very much sought after," Schofield notes. "It attracts a lot of retail to that level, which we do see as an issue when it takes away from street based retail."
These days there is a lot of activity at street level also. A new restaurant, sports bar and multi-functional venue for concerts, press conferences and special events, jointly developed by the Calgary Flames and Concorde Entertainment Group, is one of the most notable new downtown ventures.
"I've worked my entire career in the downtown core and I've seen the booms and busts. This is the most prolific," Schofield maintains. "The construction does bring with it some significant traffic congestion and disruptions to traffic flow, but people always say: it's a great set of problems to have. There is obviously a lot of growth and money in the core."
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By Barbara Carss
Space and staffing shortages are creating a particular dilemma for Calgary-based facilities managers. Companies are prospering and growing as Alberta's oil and gas sector drives the economy, but most of them have nowhere to move to in a downtown office market where the vacancy rate now hovers around 0.3%. At the same time, employers are trying to recruit and retain workers in a highly competitive labour market, and office amenities are a seen as an important factor in employee contentment.
"The ratio of space per person that energy companies use is fairly generous compared to a typical real estate space," says Bill Fender, Director or Realty and Facilities Services with SNC Lavalin Nexacor in Calgary. "The ratios are coming down, but enclosed offices still predominate and companies are reluctant to change."
Although a significant number of office building tenants have begun reconfiguring their premises to accommodate more people, industry analysts suggest it's an interim solution until more space opens up. Approximately 3.6 million square feet of new downtown office space is now under construction and slated for completion between 2007 and 2009; another 2.1 million square feet has development approval from the City of Calgary and is being pre-leased; and at least an additional 2 million square feet of office space is in the planning and design stage.
Whether renewing leases or taking on new space, tenants should expect to pay more. "The net rents have doubled in the last couple of years," Fender says.
COSTLY SOLUTIONS
"In the short term, most of our clients are trying to figure out what to do," reports Glenn Simpson, a Partner with Avison Young Commercial Real Estate (Alberta). "They are basically looking at doing deals today for occupancy in 2010."
Simpson's own office provides an illustration of the leasing decisions that tenants now face. In 2006, Avison Young gave up the 10,300-square-foot quarters it had been in for five years.
"We've gone down to 7,800 square feet even though our business has grown dramatically," Simpson says. "Our gross monthly cost is the same as it was previously."
Nevertheless, he maintains that employees are largely satisfied with their new accommodations in Gulf Canada Square, which have been designed to use space efficiently. The firm had the relative luxury of designing the space and moving in after the fit-up for higher density occupancy was complete, whereas a greater number of tenants in downtown Calgary are now staying put and reconfiguring their premises while they continue to work in them.
That option is unlikely to be painless. Calgary's endemic shortage of skilled trades and building materials is creating delays that compound the challenges of undertaking a retrofit project in an occupied space. If tenants are simultaneously dealing with overcrowding, they may lack adequate swing space to move their employees out of the path of construction, and, with the market working in their favour, many contractors are less willing to work after hours and on weekends. Prolonged construction schedules bring still more costs.
"Costs are increasing at about 1.5% to 2% a month for construction," Fender says. "It's really a contractor's market right now. Even finding a qualified contractor can be problematic. Fitting out a 15,000-square-foot floor is considered a small job to some of these companies so you might call for tenders and not get any bids."
EFFICIENCY ALTERNATIVES
Depending on the number of extra workers to be accommodated, substantial investment could be required for structural and mechanical/electrical upgrades. "Definitely the air handling has to be considered," says Patricia Evans, a Principal with Sizeland Evans Interior Design Inc., which has been overseeing several office intensification projects. "There are also Building Code requirements for the number of washroom stalls for the number of people on a floor."
If a company is converting to an open office plan, acoustic tiling and/or a sound masking system will probably be necessary. Thus far, though, few of Evans' clients have opted for such dramatic transformations.
"They will go to smaller 10' x 12' foot offices before going to open offices - particularly in the oil and gas sector - and that's a staff retention strategy," she notes. "Where there is a movement toward it, it's more to gain access to natural light for employees, which, again, is part of staff retention. Offices are moving to the interior with glass fronts, and workstations are at the windows."
Many employers are now upgrading office furniture and giving their staff more input into design choices as tradeoff perks for reduced space. "They're going to newer furniture and furniture that provides more ergonomic flexibility," Evans says.
She advises companies to make maximum use of movable walls when they invest in renovations. This gives the flexibility to create temporary meeting or work space that can be reformatted for other functions. Movable walls allow large boardrooms to be sectioned off into smaller meeting spaces when needed, while movable walls between a boardroom and the reception area can free up space and improve flow-through traffic if companies are hosting events for their clients. Should further renovations be needed in the future, movable walls will greatly reduce the amount of dust and construction debris that will be generated.
The space crunch is also spurring an outsourcing trend as more companies opt to send their filing systems offsite to third party service providers that can store, manage and provide digital versions of the files as clients request them. "We had a 100,000-square-foot client where there used to be a huge high density filing space on every floor, and now there are just two large filing rooms," Evans recounts. "That can free up a significant amount of space. One filing room can hold 12 more workstations."
LOCATION TAKES PRIORITY
Many of the companies based downtown have plenty of room in which to intensify and are simply moving toward occupancy levels that would be considered standard elsewhere. Labour shortages also figure in space-per-person ratios.
"Employers are holding space that's not occupied. They've got it locked down hoping to fill it," Fender maintains. "Even though these offices are 100% leased and full, the density isn't anywhere near what you'd see in Toronto."
Calgary's current market dynamics help underscore the priority that certain businesses place on location. "Where possible, some companies are starting to spill over into the suburbs out of the downtown core, but what's typically happening is it's the non-energy sector companies that are looking to leave the downtown core," Fender adds.
Meanwhile, the energy companies appear prepared to accept rising rents and temporarily closer quarters. "There has been talk of a large migration out of the downtown to the beltline and the suburbs, but it hasn't really happened yet," Simpson observes.
The area known as the beltline roughly encompasses 10th, 11th and 12th Avenues and hugs one side of the CP rail corridor, while the downtown core stretches on the other side, from 1st to 9th Avenue. "The beltline is literally on the other side of the tracks. It's a heck of a lot closer to the downtown than midtown is in Toronto. It's nowhere near the distance from Front Street to Bloor Street," Simpson says. "But Calgary is still a city that is very oriented to the downtown."
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