When the Bow tower was built in 2012 in the heart of Calgary, it was a symbol to the rest of the world the city was an economic powerhouse.
The just under two million-square-foot, 58-storey skyscraper, the tallest west of Toronto at the time, was Encana’s signature headquarters building in the oilpatch, illustrating the company’s success and the city’s stature on the global energy front.
But times have dramatically changed due to a collapse in oil prices which began in late 2014, resulting in two years of recession for Calgary and thousands of job losses in the core.
Today, with the downtown office vacancy rate hovering at a historic high of close to 25 per cent, energy giants Encana and Cenovus, who occupy the Bow, have close to half a million square feet of office space available on the sublease market.
“Although Calgary has always been a very active sublease market what makes this space unique is the ability to do sublease terms of up to 20 years – rare in any market,” said Adam Hayes, principal and broker with Cresa Alberta, a commercial real estate firm specializing in tenant representation.
A listing brochure by CBRE indicates Cenovus has 332,895 square feet available with a sublease term of five to 20 years and market rates for the asking net rent.
In an email Cenovus spokesman Reg Curren wrote: “Our sublease marketing activities continue with the Bow and the other spaces we’ve previously identified. . . . We’re marketing approximately 800,000 feet across seven downtown locations. Not all of that space is currently vacant and we continue to review sublease results with our current needs.”
Second listing offers 156,251 square feet
In another listing brochure by Avison Young, Encana has 156,251 square feet available for immediate occupancy with the term negotiable and market rates for the asking net rent. Encana could not be reached for comment.
“There are a lot of tenants in the same situation by virtue of the size of the company. It really depends on how much surplus space they’re dealing with,” said Hayes.
“What it tells me is that a lot of companies are re-calibrating their businesses,” he explained. “As a result of that, the office space comes into play at some point down the road and we’re far enough into the downturn that a lot of companies have rationalized what their companies are going to look like, how they need or have to continue to re-calibrate and they need to try and monetize some of this surplus space even if it means doing deals in today’s market.”
Hayes said net rental rates for top-end sublease space in the downtown core are in the low $20s-and-just-below range per square foot. The rates have fallen by between 30 to 50 per cent over the last three years.
Richard White, an urban strategist in Calgary, said the Bow is an iconic building.
Bow “looks like a barrel (of oil)”
“From an architectural point of view, the Bow is a very interesting building because it was probably the first building to go away from the box,” said White. “It became circular. It’s called the Bow but I’ve also heard it called the Banana. It also has a barrel shape to it. I’m surprised nobody has really picked up on the fact that it looks like a barrel (of oil).”
It was also a groundbreaking new build in that it was the first oil company to go east of Centre Street in downtown Calgary.
“Centre Street was sort of the dividing line that there was the business community to the west and then the sort of civic, cultural, government precinct to the east. It really broke a lot of barriers in that way,” said White, adding the Bow was purpose-built for Encana in contrast to many buildings constructed by pension funds for multi-tenant use.
“One of things that’s very unique in Calgary compared to most other cities in North America, maybe the world, is we have big office tenants. . . . Many other places don’t have many tenants over 100,000, 150,000, 200,000 square feet.
“Calgary’s downtown is very different. It’s a headquarters (market) and headquarters take up bigger office spaces. It has big law companies. It has big chartered accountants. They want one big floor plate.”
Building offers premium amenities
The Bow, located at 500 Centre Street S.E. and managed by H&R REIT (HR.UN-T), features a sky garden with a state-of-the-art auditorium, large multi-purpose room, kitchen, commercial grade food preparation area, soft seating and trees.
Cresa’s Q2 office market report says the Calgary downtown office vacancy rate hit a new high in the quarter of 24.74 per cent with negative absorption of 312,481 square feet.
Vacancy sits at 10.8 million square feet in a total inventory of 43.7 million square feet. Vacancy is comprised of 6.8 million square feet in the headlease market and four million square feet in the sublease market.
Also, from 2014 to 2017 average headlease net rental rates per square foot have dropped by 41.73 per cent in class-AA space and by 46.83 per cent in the class-A space.