BY MARIO TONEGUZZI, CALGARY HERALD JANUARY 4, 2011

Gary Bugeaud, managing partner of Burnet, Duckworth & Palmer LLP, says the law firm will be moving into the new Eighth Avenue Place in August.
Photograph by: Ted Jacob, Calgary Herald
CALGARY - It wasn't long ago that some industry experts were predicting challenging times for Calgary's downtown commercial real estate market.

With two mega projects -- The Bow tower and Eighth Avenue Place -- still under construction, but set to deliver nearly three million square feet of office space by 2012, some reports were forecasting the vacancy rate would soar to the 18 to 20 per cent range.

That's what a recession will do to a city's economy.

In the good years not long ago when Calgary's economy was firing on all cylinders, the downtown vacancy rate dipped to a minuscule 0.6 per cent.

But a surprising thing happened this past year -- companies were taking up space at a record amount.

Gary Bugeaud, managing partner of Burnet, Duckworth & Palmer LLP, said his firm will be moving into Eighth Avenue Place in August and taking up 4 ½ floors, or 130,000 square feet.

"We are increasing space and entering a long-term lease. Our lease was coming to expiry so we evaluated the marketplace and looked at our options between staying and the new towers having gone up," he said. "We're happy and excited about the new building."

The law firm is currently in the Bank of Montreal building in about 110,000 square feet.

"The (new) building is in a great location to get in and out of downtown. For the livability for our employees we think that is going to be great -- and right on the outskirts of downtown. So you can easily get in and out and yet it's connected in the Plus-15 to everything," he said.

"We spent about a year-and-a-half evaluating the marketplace. We started evaluating just when we were in the depths of the recession. There was a lot of watching the marketplace before committing."

A commercial real estate market report released in December by CITI Commercial Real Estate Services Inc. said that with The Bow building added to the inventory, the absorption of office space will reach a record of 2.6 million square feet in the downtown office market in 2010. In 2009, absorption, which is the change in occupied space, was negative 1.8 million square feet.

Energy companies Encana and Cenovus will occupy the 1.7 million square feet in The Bow.

Cenovus is expected to start occupying the building in late 2011, while Encana is expected to start moving in in the first quarter of 2012.

Eighth Avenue Place, with its one million square feet of office space, has already had tenants moving into the building.

According to the CITI report, authored by Michael Gigliuk, the company's associate and senior negotiator, Calgary's downtown office vacancy rate dipped to a low of 0.6 per cent in 2006 and climbed to 15.7 per cent last year.

Many industry experts were predicting the downtown vacancy rate could climb to the 18 to 20 per cent range with the completion of the two massive office projects, but Gigliuk is forecasting vacancy at about 12 per cent in 2012 when both structures are completed. In the latest downtown building boom, seven million square feet of office space will have been added.

Jim Rea, vice-president and partner of Colliers International in Calgary, said Eighth Avenue Place is 75 per cent leased.

"We've got deals pending and negotiations underway that could take that building well over that," Rea said. "The interest level has remained high. We've been successful in getting the building leased from the bottom up."

A year ago nothing was official on the building that began construction with no pre-leased property.

"It's high quality space. It's landmark architecture. Its location is very good. You've got easy access to and from the site because of 9th Avenue. You're a block or so from the LRT. You're Plus-15 connected into all of the other major complexes. You've got that nicely renovated upgraded retail centre right across the north side of 8th Avenue and lots of parking. The building itself fits the niche of tenants today who are seeking large floors," said Rea.

"You don't just build office buildings every day of the week. And I think the market has realized that Eighth Avenue Place is the last new building to come into the market and will be the last one. The Bow is still under construction but that's just for Encana and Cenovus. There won't be space in that building. So it's fairly evident that the market won't be building another building here for the next few years."

Bruce Graham, president and chief executive of Calgary Economic Development, said several factors contributed this year to leasing activity in the downtown office market. First and foremost, there has been space available.

"Overall, there's an increased sense of optimism. We have a commodity-driven economy . . . and companies are preparing for the future and knowing from the past that they need to be able to accommodate growth and have space for people who are going to help them execute those capital projects," he said.

The city has not seen a big increase in employment yet, but there have been some incremental improvements, added Graham.

"By and large, we're still at the front edge of the activity that's coming forward."

Many economic reports are painting a positive outlook for Alberta's economy particularly in the next two years. Economic growth is expected to either lead the nation or be among the leaders, which will trigger employment growth and in-migration growth in Calgary.

"I think the word is getting out that Western Canada, and particularly Calgary, is set to lead the country in growth and this country is likely to lead most of the G8 countries in growth. So we're stepping back into familiar territory for Calgary," added Graham.