CALGARY – A new skyscraper rising over Calgary will be the city’s tallest when construction is finished the coming year, but it’s unlikely to become full.
The $1.3-billion building’s largest tenant, oilsands producer Cenovus Energy Inc., confirmed now that it would not require the amount of space it had previously agreed to occupy in 2013, when oil prices were comfortably trading above US$90 per barrel.
“We have no need for just as much space once we initially thought,” company spokesperson Rhona DelFrari said.
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In the 1990s, investment bankers coined the term “the skyscraper curse” to describe how the construction of record-setting towers frequently coincided with recessions, and listed Ny City’s Empire State Building as the most recognizable example.
Calgarian these include the Bow, that was being built during the 2008 recession, and today Brookfield Place is rising just like oil costs are taking.
Cenovus had agreed to lease 71 per cent of the 1.4 million square feet of office space within the 56-storey Brookfield Place building, that is set to eclipse the crescent-shaped Bow tower because the city’s tallest building.
They have to be looking at the a million square feet and saying, ‘that’s the very last thing we need
The company confirmed it’s actively trying to sublet work space it occupies, but wouldn’t say whether which includes its corporate headquarters at the Bow or its planned new headquarters at Brookfield Place.
Asked whether Cenovus was trying to wriggle out of its deal to lease in Brookfield Place, president and CEO Brian Ferguson said: “What I can say- we are taking a look at how we can continue to reduce and improve costs in all aspects of our business, including leasing costs.”
“Beyond that, I can not enter into specifics. We’re actively looking to sublease some space now, but that is all of the space we are taking a look at,” Ferguson told the Financial Post.
Cenovus reported its fourth quarter results Thursday and announced it would further reduce staff to outlive the collapse in oil prices, which remained below US$30 per barrel this week, despite a 12 per cent surge on Friday. Inside a U.S. Filing filing the company said hello may sell as much as US$5 billion of stock, debt or any other securities.
The company had let go 1,500 people this past year.
Despite the reduced headcount, DelFrari said that the company could be honouring its leases.
Brookfield REIT’s vice-president of communications Melissa Coley said her company’s policy “is never to comment on tenants.”
Paul Finkbeiner, chief executive of GWL Realty Advisors, which has a lot more than $15 billion in assets under management, said you simply can’t break a lease.
“What you do is try to negotiate out. Let’s imagine you sign a 15-year lease, you want to the landlord and say, ‘I’ll pay for 5 years but I’ll leave. If you get someone within five years, you make money.’ The actual question is when you think the market is and when can you lease,” he said.
Given the state of the Calgary office market, it appears unlikely Brookfield might have much incentive to renegotiate any of its tenants’ leases.
While Cenovus looks for others to take up the area it no longer needs, the subleasing market in Calgary has slowed considerably.
“You laid off the number of people, cut your dividend and today you’re doing an equity raise?” independent real-estate consultant Ross Moore said of Cenovus. “They need to be looking at the a million sq ft and saying, ‘that’s the last thing we need,’ even if it’s two years out (from completion).”
Research on the Calgary office space market from Avison Young noted that, within the fourth quarter of last year, “the quantity of sublease space has risen as companies make an effort to cut their expenses, leading to significant increases in vacancy rates citywide.”
Calgary’s downtown vacancy rate jumped four per cent over the course of the fourth quarter and now sits at around 16.3 per cent, according to Avison Young.
With files from Garry Marr
gmorgan@nationalpost.com
Twitter.com/geoffreymorgan
