Calgary’s moribund downtown office market is a financial sore spot that is likely to increase taxes for commercial property owners outside of the city’s core, according to a new report that will be sent to council on Tuesday.
The prospect of higher taxes is the latest fallout from Calgary’s weak office market, which has suffered from a combination of the shrinking energy sector and massive overbuilding in the downtown core.
In 2015, the non-residential tax base in the downtown core was responsible for about one-third of the City of Calgary’s revenue. In 2019, the share of taxes from downtown commercial property is forecast to reach 19 per cent, compared with 23 per cent this year, according to the report from the city’s chief financial officer.
Because Calgary’s downtown office market has lost a slew of tenants, property owners and businesses outside of the core have had to shoulder a bigger share of the tax burden.
“It is expected that this will contribute to a tax increase” for commercial property owners located outside of the downtown core, where real estate values have remained more stable, the report said.
The report provides a tiny glimpse into the city’s upcoming budget. The reason why property owners outside of the core are facing a tax hike is because the city’s revenue-neutral policy requires gaps in property taxes to be made up elsewhere.
"All the businesses outside [the downtown core] are making up for the shortfall. They will be paying a lot more,” said Zoe Addington, Calgary Chamber of Commerce’s director of policy.
Office demand cratered after oil prices started tanking mid-2014, as energy companies and related businesses slashed staff.
At the same time that the oil sector was contracting, six new office properties opened, adding 4.6-million square feet of new office space downtown, according to commercial realtor Cushman & Wakefield. The new Brookfield Place alone has added more than one million square feet.
“Calgary got two black eyes,” said Stuart Barron, national research director with Cushman & Wakefield.
The office vacancy rate in Calgary’s business district is hovering around 24 per cent, higher than previous oil crashes. Meanwhile, the vacancy rate outside of the downtown core is slightly lower, at 21.7 per cent.
Energy companies used to dominate the downtown core, but now they have retreated and have not boosted staffing levels since oil prices started to recover.
“It’s really about the dominance of a single sector driving growth downtown,” Mr. Barron said. “We are seeing the fundamentals in place that simply don’t support significant expansionary momentum.”
Calgary’s Chamber of Commerce has come up with a list of recommendations, including increasing the tax rate for residential property owners and cutting the city’s budget.
“The city does control their budget. They decide how much they want to bring in, so they have control over that. They could reduce it,” Ms. Addington said.