CALGARY – One of Canada’s largest owners of corporate real estate has significantly slashed the value of its Alberta properties as Calgary hits a record high in downtown office vacancies.
Dream Office REIT (TSX:D.UN) said in its second-quarter results that it has written down the value of its Alberta holdings by $748.4 million this year, or 45 per cent, to about $930 million.
The real estate investment trust said it did that because the economic conditions in the province remain soft and it now believes the uncertainty and weakness in the Alberta office sector could be prolonged.
“Since the beginning of the year, it’s become apparent that the theme for Alberta office real estate is lower for longer,” said CEO Jane Gavan in an investor call Thursday.
She said Calgary has the highest office vacancy rate in the country, and with more buildings under construction that won’t go down any time soon.
“Even if the economy recovers, we expect it’s going to take some time for businesses to add people and to require more space,” she said.
Calgary’s downtown office vacancy rate hit an all-time high of 22.2 per cent in the second quarter, beating the previous record of 22.0 per cent set in 1983, according to commercial realtor CBRE.
CBRE said in its second quarter report that so far this year there’s been a net increase of 1.35 million square feet of available downtown office space as oil and gas companies downsize because of the steep drop in energy prices.
It said it expects Calgary vacancy rates to climb even further as bankruptcies and mergers open up even more office space.
Edmonton’s more diversified downtown office district hasn’t been hit nearly as hard, with vacancy rates hovering around 13 per cent, said CBRE.
Dream Office said the value of its Alberta investment properties, which include the HSBC Bank Place in Edmonton and the Dominion Centre in Calgary, will remain challenged for the foreseeable future and their value could drop further.
Dream’s share price closed Thursday down $1.67, or nine per cent, at $16.92.
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Note to readers: This is a corrected story. A previous version said the total value of Dream Office REIT’s Alberta holdings was about $1 billion.