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Commercial real estate comes up a lot at dinner parties in Calgary. Really.

The reason is that the average citizen sees the sub-sector as a microcosm for the economy, which has taken its knocks. Folks look up and see skyscrapers whose construction began when times were good and are now nearing completion. The towers add scads of square footage to a downtown core where there's so much vacancy already.

It makes for a bit of a downer over the main course and into dessert, as guests discuss the oil-patch layoffs that freed up all the office space. Most people know someone who was let go by an energy company, which puts commercial real estate into a personal realm.

The amount of downtown office space available for rent or sublease was recently estimated at nearly 11 million square feet – an area equal to four Empire State Buildings. The vacancy rate is pegged at nearly 28 per cent.

Oil prices, which looked to be recovering at the start of 2017, have stalled below $50 (U.S.) a barrel, raising worries the market could stay in a funk. What's more, foreign-based oil companies have sold more than $30-billion (Canadian) of assets this year, spelling more uncertainty on the white-collar jobs and office-space fronts.

One of the companies that bought a big chunk of those assets, Cenovus Energy, has delayed its planned expansion into the new 56-storey Brookfield Place tower by a year, saying its space requirements had changed during the downturn.

Is this as bad as things will get in Canada's third-largest office market? One global real estate and investment management firm thinks so. Despite all the evidence, the research arm of Jones Lang LaSalle Inc. believes the worst is over for Calgary commercial real estate.

Because of the high vacancy rate and a time lag between higher oil prices and changes in office rent, downturn commercial space will take longer to absorb than, say, space out in Calgary's industrial districts, but there appear to be changes emerging in the local economy that point to improvements.

"It's all about job creation, and if the high-paying jobs from the oil patch are slow to come back or don't come back, then other sectors will take its place," said Brett Miller, JLL Canada's chief executive officer. "It's the sector that was hit the most, so the recovery will be the lengthiest, though we're already seeing some early signs of companies out there looking for well-priced space and making commitments."

It's been a long and painful downturn for Calgary, although it's following a familiar script in real estate, Mr. Miller says. The first reactions are shock and denial, then a freeze-up in activity, which characterized 2016.

"Then the brave souls venture out and do some transactions and start to create some data points where we determine where the bottom is. Once that's created it gives confidence, the market starts recovering slowly and builds momentum," he says. "So we feel that we're past that point of the falling knife in Calgary. There are some data points on the leasing side and on investment transactions."

It won't be a quick rebound with so much space on offer, but recovery should start to take hold in the later part of this year, and extend through 2018, he said.

Other assessments are less optimistic. On Tuesday, CBRE Ltd. issued a report suggesting downtown vacancy could still climb to 30 per cent as a result of the energy mergers and acquisitions, which normally result in job loss. That would be up from 27.7 per cent in the second quarter.

A sizable portion of available space comes from companies looking to sublet, and that segment can change quickly if their business improves and they decide to use it themselves, Mr. Miller says.

In addition, the city's economic-development arm has been courting other types of businesses, especially technology firms that have some links to the energy business.

In May, San Francisco-based RocketSpace Inc., which connects high-tech startups with corporate clients, announced it was moving into a former Encana building, No forecasters are calling for a quick return to $100 (U.S.) oil, so the city will have to keep selling its educated and skilled populace to other types of industries.

"I think its economy will be much more balanced rather than being one-industry specific. As it does so, every thousand jobs that are created take roughly 150,000 square feet of space, or half an office building," Mr. Miller says.

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The Canadian Press

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