The value of office buildings in the center of Calgary declined by 32% in the past year, due to the high unemployment rate and almost record vacancy rates heavily fueled by the crisis in the oil sector. By contrast, domestic values remained stable, according to estimates released Thursday by the city.
Calgary's empty towers have become a painful place for finance in the city and will lead to higher property taxes for proprietary owners and many homeowners outside the center of the core, according to the city rating in 2019.
Deep diving in the value of office space in the city center is the latest repercussion for the real estate market that has faced a number of economic challenges over the past five years. Together with the energy sector, which has eliminated tens of thousands of jobs in downtown Calgary, the city faces significant upgrades at its core and the risk of worsening economic shocks as a result of delays in the construction of the new pipeline capacity.
Because of the job vacancy rate in the city center, which currently hovers around 30 percent, there has been a "dramatic change" in the value of office space, according to city assessor Nelson Carp. While the value of typical office space fell by 32 percent, industrial spaces fell by 4 percent. The retail properties were unchanged.
Some of the most expensive office towers in the city last year recorded their values, according to a list published by the city. For example, Bow Tower, which opened in 2013 and now dominates the city's horizon, lost 19 percent of its value, fell to $ 779 million from $ 957 million. The site of Fifth Avenue, formerly known as Eso Plaza, dropped property value by 46 percent to $ 231 million from $ 429 million.
House values were relatively stable and fell by one percent, according to Mr Karpa. Total house sales fell by 14.5% in 2018 compared to the previous year, according to a report released by the Calgary Real Estate Board on Thursday. Thanks to the large number of homes on the market, the homeowners' reference prices also fell by 1.5 percent over a one year period.
The city's rating in 2019 is based on the value of the properties on July 1, 2018. However, oil prices have dropped significantly since then, and the Alberta government has made a mandatory reduction in oil production. "We also understand that the market has changed and any changes will be reflected in the next year's assessment," warned Mr Karpa.
Recently, as of 2015, the unpaid tax base in the center of Calgary accounted for almost a third of the city's revenue. In 2019, with the City Council to approve an increase in property taxes of 3.45 percent, it is expected that only 19 percent of city tax will be covered.
Greg Quong, Alberta's Managing Director for Commercial Realtor CBRE, said the collapse in the downtown property center in downtown Calgary was overdue correction.
"When oil prices dwindled in December 2014, the value of the property has not dropped sufficiently for the next three years. I think the city can catch up and face [this] reality, "he said.
Calgary drowned in his savings fund in recent years to reduce tax hikes for businesses, but Mayor Nahid Nenshi warned that the city could not afford to continue to keep up with tax hikes.
The real culprit according to Mr Quong is the increased unemployment rate in Calgary, which in November is 7.9 percent, according to statistics Canada. After several years, where Calgary enjoyed one of the lowest unemployment rates in Canada, he is now well above the national average, and second only in St. John, among the major cities in the country.
"The disease is the rate of unemployment, the symptoms are taxes, low values of property and vacancy rates," he said.