Calgary’s downtown office vacancies are finally seeing a decline, thanks to a surge in development and demolition incentives aimed at addressing the surplus of unused office space. While tenant downsizing has contributed to negative net absorption in the city, the transformation of under-utilized Class B buildings is helping counteract that trend.
Despite Canada’s overall office market showing positive net absorption for the first time since 2019, Calgary is bucking the trend, with 214,375 square feet of office space returning to the market this year, according to CBRE Ltd. However, vacancy rates continue to fall as more buildings undergo conversions. By the third quarter of this year, the vacancy rate in downtown Calgary dropped to 29.6%, down from 30.3% in the first quarter. Class A buildings have been hit hardest, with vacancy rates creeping up to 24.7%.
This downturn in office vacancies can be largely credited to Calgary’s strategic development programs. Several buildings were sold for conversion projects in the third quarter, and construction has begun on new developments. While most of the conversion activity is taking place downtown, there’s a noticeable uptick in the Beltline and suburban areas as well.
A major driver of this activity is the city's Downtown Development Incentive Program, which resumed in September following a $52.5 million boost. The program, which aims to eliminate 6 million square feet of under-utilized office space by 2031, provides developers with up to $75 per square foot for office-to-residential conversions, with a maximum of $15 million per project.
Before the program was paused in 2023, $153 million had been allocated to 13 projects, resulting in 2.3 million square feet of office space converted. The latest update from the city reports that $147 million has now been directed towards 11 projects, creating 1,500 new residential units. In total, these efforts are spurring $588 million in new residential construction downtown.
In addition to conversions, Calgary has also launched a Downtown Office Demolition Incentive Program to encourage the removal of obsolete buildings. This year saw the approval of three demolitions—the first under the program—which offers grants of $15 per square foot, covering up to 50% of demolition costs. An extra $5 per square foot is available for demolitions involving hazardous material removal, but total funding cannot exceed 50% of the overall demolition costs.
One of the largest demolitions involves three long-vacant buildings owned by Edmonton-based Cantiro Group, located on 4 Avenue SW between 5th and 6th Streets. These demolitions will clear the way for a $100 million development that includes a 33-storey mixed-use tower, with 340 purpose-built rental units—50 of which will be affordable housing—and a two-storey retail podium to support commercial activity.
As both conversion and demolition projects ramp up, these incentive programs are playing a pivotal role in revitalizing Calgary’s downtown core, transforming unused office spaces into valuable residential and commercial assets.