Real estate assets in downtown Calgary's office buildings have fallen by 32% over the past year amid high unemployment and sluggish employment rates, largely driven by the recession in the oil sector. Instead, home values remained largely stable, according to assessment data released Thursday by the city.
Empty office towers in Calgary have become a strong point for city finances and will lead to major property taxes on property owners and many homeowners outside the central plant, according to the city's 2019 market.
The deep depression in the value of office space in the city center is the latest real estate market impact that has faced a number of economic challenges over the past five years. Together with a troubled energy sector that has eliminated tens of thousands of jobs in downtown Calgary, the city is facing significant overconstruction at its center and the risk of worsening economic depression as a result of delays in building a new capacity of pipelines.
Because of the vacancy rate in the city center, currently around 30%, there has been a dramatic change in the value of office space, according to Nelson Karpa. While the value of typical office space has fallen by 32%, industrial space has decreased by 4%. Retail properties remained unchanged.
Some of the city's most expensive office towers saw their values diminishing last year, according to a list published by the city. For example, Bow Tower, which began in 2013 and now dominates the city's skyline, lost 19 percent of its value, down to $ 779 million from $ 957 million. Fifth Avenue Place, formerly known as Esso Plaza, recorded a decline in property value by 46%, to $ 231 million, from $ 429 million.
The value of housing was relatively stable and decreased by 1%, according to Mr. Karpa. Household sales declined by 14.5% in 2018 compared to the previous year, according to a report released on Thursday by the Calgary Real Estate Board. Due to the large number of homes on the market, City house reference prices also fell 1.5% over the previous year.
The city's assessment of 2019 is based on the value of properties on July 1, 2018. However, oil prices have declined significantly since then and the Alberta government has implemented 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," Karpa warned.
By 2015, Calgary's non-residential tax base was responsible for nearly a third of the city's revenue. In 2019, when the city council approved a 3.45% property tax increase, it expects commercial property in the city center to cover only 19% of the city's tax.
Greg Kwong, Alberta's general manager for CBRE, said the decline in property value in downtown Calgary is an outstanding correction.
"When oil prices diminished in December 2014, property values have not fallen sufficiently over the next three years. I think the city might catch up and confront [this] reality, "he said.
Calgary has entered its savings fund in recent years to curb corporate tax cuts, but mayor Naheed Nenshi has warned that the city can not afford to maintain a lead on tax increases.
Kwong's real culprit is the high unemployment rate in Calgary, which was 7.9% in November, according to Canada's statistics. After years of Calgary enjoying one of the lowest unemployment rates in Canada, it is now well above the national average and second only to St. Louis. John, among the bigger cities of the country.
"Disease is the unemployment rate, the symptoms are taxes, low property values and vacancy rates," he said.