The good people of Calgary have abandoned their central business district. City Council seems to be conflicted on whether to reverse this decision. Does it make sense for the province to throw good money after bad to ‘revitalize’ Calgary’s core?.The symptoms of the problem are clear. With the restructuring of the oil and gas industry, office vacancy rates are in excess of 30% or about 13 million square feet. Several office towers are completely vacant. Because of the lack of traffic downtown, the retail and service businesses there are suffering for customers. In addition, homelessness and associated crime is increasing there, further scaring non-business traffic away. On top of that, safety concerns with the LRT means we have not reached ridership levels comparable with pre-COVID numbers..The effect on real estate values has eroded the property tax base and caused a shift of these taxes to small businesses and homeowners..On the causes of the problem there is less universal agreement, either on their source or their longevity..Office towers were full during the ‘boom’ periods of the oil industry. However, during the ‘busts’ both employment and downtown traffic declined. Until recently, the long term prospects of the industry were positive, so long term investments by real estate developers in office space made sense..However, the current rise of climate anxiety has caused some structural changes in the outlook for the industry. Based on the inability to build pipeline infrastructure, many of the largest oil players divested their holdings in Alberta and looked to more favourable investment jurisdictions..This is not just another cycle, this is a structural change. This capital is never coming back. The City’s decision to declare a climate ‘emergency’ with an attendant $87 billion (probably more now with countries demanding reparations) price tag did nothing to reassure the oil industry that the citizens of Calgary supports them..Another structural change in the downtown employment market is a result of COVID-19. People have developed a real fear of congregating together because of the perceived risks of contracting infections. This means there is a real reluctance to go to work via public transportation, let alone work in a ‘bull pen’ office environment. Workers will now accept lower wages if they are allowed to work from home..Plus, because of COVID-19, employers had to find out what work could effectively be done remotely and what couldn’t. As well, technology evolved to enhance ‘out-of-office’ productivity. This is not something that will be reversed as businesses have discovered real cost savings by eliminating office overheads. Even the City has not forced its workers to come back to City Hall full time..If the underlying causes are not going to change, it means the dire symptoms are not going to be reversed. Nor can hopes of a growth in the tech industry be a saviour. The largest and most famous tech names have huge market capitalizations but their employment and tax contributions are minuscule by comparison..Here’s hoping that Calgary can become Silicon Valley North but we will be disappointed in the actual effects on our economy. Worldwide and in Calgary tech firms are cutting employment so there goes that, as a replacement for building giant oil sands mines. And there are no compelling reasons for these companies to locate downtown..Two broad solutions have been proposed to solve the problem: subsidization of real estate development and coercing people to come downtown..The City’s financial incentives to redevelop office buildings into apartment buildings has seen some success. But a couple of small buildings here and there will not erase millions of square feet of vacancy. Nor will they cause a resurgence in downtown real estate values..City council is also now facing the prospect of how much to subsidize the new arena and is facing push back from those who think the “oil billionaires” should build an uneconomic facility. The Eagles coming for a concert once in a while will not bring office workers back downtown..Further, the current proposed location of the facility in Victoria Park is on the wrong side of the vacancy problem in the west. So there will be no spill-over effect of this development where it is most critically needed..Another policy solution is to force people to go downtown. For example, right now anyone using court services must come downtown..One current proposal is to force expansion of the college and university campuses downtown. This would also have benefits in forcing LRT ridership and the development of student housing downtown. This still amounts to government subsidization as the rents here are far more than the costs in the suburban campuses. Further, the U of C and Mount Royal already have long term plans for enrolment and development of their physical plants. Why change to a higher cost option?.You could force people downtown by closing all the neighbourhood stations. But this would be absurd and unacceptable. Why is it considered OK for college students? If the City will not even force their City Hall employees downtown they give up any moral authority to force other groups downtown..Is there another way? Of course but it will take hard decisions and a refocus of resources..First of all, the homeless and addicted need help. No one will travel on unsafe transportation to unsafe destinations. This means more resources and a higher commitment to address the underlying problems of mental health and addictions. Continued enabling of this population by allowing camping ghettoes and access to safe injection sites or even free drugs will not reduce the problem..Sometimes, mental health issues cannot be addressed by allowing irrational personal choice to trump recovery. During COVID we had no problem coercing people to accept treatment whether they wanted it or not. Why shouldn’t we do the same thing for those suffering from mental illness and addiction? Recently, the UCP government established its own task force in Calgary to address these issues with City officials including. Notably, the Mayor was not invited to participate. Also, provincial Sheriffs were used to augment CPS officers to provide more boots on the ground downtown..Not so long ago “Defund the ” was a popular movement accepted by City Council. It is good to see the province overriding this initiative..As far as pumping more money into sports and events facilities, it appears as if the old 2015 CalgaryNext proposal is back on the table. This was to be located in west downtown and include a new football stadium and field houses for amateur sport and training. This would allow for redevelopment of the McMahon stadium site for more doctor and nurse training close to the U of C and Foothills Medical/ Cancer centre. Additional facilities for mental health and addictions recovery could also be built in this location. (As a bonus, the old Bow River creosote environmental contamination could be addressed at the time.).The provincial budget is coming down today and Calgary has their hand out for money. Hopefully Danielle Smith can put some conditions on any spending that will ensure that the underlying problems get addressed. But the fact is that the people of Calgary never liked going downtown, it was just a place to go for a job. That has become a bigger structural problem that government cannot solve..As for the downtown real estate developers — they need to adapt on their own without subsidies, just as the oil industry has done in the past..William D. Marriott is a retired economist who specialized in public policy analysis of the oil and gas industry.
The good people of Calgary have abandoned their central business district. City Council seems to be conflicted on whether to reverse this decision. Does it make sense for the province to throw good money after bad to ‘revitalize’ Calgary’s core?.The symptoms of the problem are clear. With the restructuring of the oil and gas industry, office vacancy rates are in excess of 30% or about 13 million square feet. Several office towers are completely vacant. Because of the lack of traffic downtown, the retail and service businesses there are suffering for customers. In addition, homelessness and associated crime is increasing there, further scaring non-business traffic away. On top of that, safety concerns with the LRT means we have not reached ridership levels comparable with pre-COVID numbers..The effect on real estate values has eroded the property tax base and caused a shift of these taxes to small businesses and homeowners..On the causes of the problem there is less universal agreement, either on their source or their longevity..Office towers were full during the ‘boom’ periods of the oil industry. However, during the ‘busts’ both employment and downtown traffic declined. Until recently, the long term prospects of the industry were positive, so long term investments by real estate developers in office space made sense..However, the current rise of climate anxiety has caused some structural changes in the outlook for the industry. Based on the inability to build pipeline infrastructure, many of the largest oil players divested their holdings in Alberta and looked to more favourable investment jurisdictions..This is not just another cycle, this is a structural change. This capital is never coming back. The City’s decision to declare a climate ‘emergency’ with an attendant $87 billion (probably more now with countries demanding reparations) price tag did nothing to reassure the oil industry that the citizens of Calgary supports them..Another structural change in the downtown employment market is a result of COVID-19. People have developed a real fear of congregating together because of the perceived risks of contracting infections. This means there is a real reluctance to go to work via public transportation, let alone work in a ‘bull pen’ office environment. Workers will now accept lower wages if they are allowed to work from home..Plus, because of COVID-19, employers had to find out what work could effectively be done remotely and what couldn’t. As well, technology evolved to enhance ‘out-of-office’ productivity. This is not something that will be reversed as businesses have discovered real cost savings by eliminating office overheads. Even the City has not forced its workers to come back to City Hall full time..If the underlying causes are not going to change, it means the dire symptoms are not going to be reversed. Nor can hopes of a growth in the tech industry be a saviour. The largest and most famous tech names have huge market capitalizations but their employment and tax contributions are minuscule by comparison..Here’s hoping that Calgary can become Silicon Valley North but we will be disappointed in the actual effects on our economy. Worldwide and in Calgary tech firms are cutting employment so there goes that, as a replacement for building giant oil sands mines. And there are no compelling reasons for these companies to locate downtown..Two broad solutions have been proposed to solve the problem: subsidization of real estate development and coercing people to come downtown..The City’s financial incentives to redevelop office buildings into apartment buildings has seen some success. But a couple of small buildings here and there will not erase millions of square feet of vacancy. Nor will they cause a resurgence in downtown real estate values..City council is also now facing the prospect of how much to subsidize the new arena and is facing push back from those who think the “oil billionaires” should build an uneconomic facility. The Eagles coming for a concert once in a while will not bring office workers back downtown..Further, the current proposed location of the facility in Victoria Park is on the wrong side of the vacancy problem in the west. So there will be no spill-over effect of this development where it is most critically needed..Another policy solution is to force people to go downtown. For example, right now anyone using court services must come downtown..One current proposal is to force expansion of the college and university campuses downtown. This would also have benefits in forcing LRT ridership and the development of student housing downtown. This still amounts to government subsidization as the rents here are far more than the costs in the suburban campuses. Further, the U of C and Mount Royal already have long term plans for enrolment and development of their physical plants. Why change to a higher cost option?.You could force people downtown by closing all the neighbourhood stations. But this would be absurd and unacceptable. Why is it considered OK for college students? If the City will not even force their City Hall employees downtown they give up any moral authority to force other groups downtown..Is there another way? Of course but it will take hard decisions and a refocus of resources..First of all, the homeless and addicted need help. No one will travel on unsafe transportation to unsafe destinations. This means more resources and a higher commitment to address the underlying problems of mental health and addictions. Continued enabling of this population by allowing camping ghettoes and access to safe injection sites or even free drugs will not reduce the problem..Sometimes, mental health issues cannot be addressed by allowing irrational personal choice to trump recovery. During COVID we had no problem coercing people to accept treatment whether they wanted it or not. Why shouldn’t we do the same thing for those suffering from mental illness and addiction? Recently, the UCP government established its own task force in Calgary to address these issues with City officials including. Notably, the Mayor was not invited to participate. Also, provincial Sheriffs were used to augment CPS officers to provide more boots on the ground downtown..Not so long ago “Defund the ” was a popular movement accepted by City Council. It is good to see the province overriding this initiative..As far as pumping more money into sports and events facilities, it appears as if the old 2015 CalgaryNext proposal is back on the table. This was to be located in west downtown and include a new football stadium and field houses for amateur sport and training. This would allow for redevelopment of the McMahon stadium site for more doctor and nurse training close to the U of C and Foothills Medical/ Cancer centre. Additional facilities for mental health and addictions recovery could also be built in this location. (As a bonus, the old Bow River creosote environmental contamination could be addressed at the time.).The provincial budget is coming down today and Calgary has their hand out for money. Hopefully Danielle Smith can put some conditions on any spending that will ensure that the underlying problems get addressed. But the fact is that the people of Calgary never liked going downtown, it was just a place to go for a job. That has become a bigger structural problem that government cannot solve..As for the downtown real estate developers — they need to adapt on their own without subsidies, just as the oil industry has done in the past..William D. Marriott is a retired economist who specialized in public policy analysis of the oil and gas industry.
