"It's A Bloodbath" - Here Is The Biggest Casualty Of Canada's Recession

Tyler Durden's picture

In the past year, we have extensively profiled the collapse of ground zero of Canada's oil industry, Calgary, as a result of the plunge in the price of oil, in posts such as the following:

Since then it has only gotten worse for Canada, and as of two it culminated with the first official recession in 7 years.

 

Additionally, in September we profiled the expected collapse of the Calgary commercial real estate market when we reported that in Alberta Canada now has 1.7 million square feet of empty office space, the most in North America, with another 5.2 million under construction! After years of booming construction, the natural resource rich country is starting to feel the pinch.

Overnight Bloomberg followed up on this stunning deterioration when it, too, reported that "office-tower owners in Canada’s energy hub are about to feel the full force of the oil-price crash."

Using data from real estate brokers including Jones Lang LaSalle Inc. and Avison Young, Bloomberg calculates that vacancy is already at a five-year high in Calgary and rents are the lowest since 2006 after thousands of office jobs were cut. Energy company tenants have now begun to ask for rental relief and are offering subleases for as little as half the going rate.

The backlog is even worse: five new office towers with about 3.8 million square feet (353,031 square meters) of space hits the market in the next three years.

End result: if one ignores shadow vacancy rates, it is "only" as bad as 2010. If one adds shadow vacancy, or space leased but sitting empty, the rate jumps to 16%, the highest since the mid-1980s.

In downtown Calgary, the vacancy rate jumped to 14 percent in the third quarter, the highest since 2010 and compared with 5 percent for downtown Toronto, according to CBRE Group Inc. Companies are subleasing a record 2.7 million square feet, the brokerage said. That doesn’t include as much as 2 million square feet of so-called "shadow vacancy" or space leased but sitting empty, which would push vacancy to 16 percent, the most since the mid-1980s.

As for Canada in general, the vacany rate has already surpassed the 2009 highs.

The following comment from Alexi Olcheski, an office-leasing principal at Avison Young from his office in downtown Calgary, says it all:
"It is a bloodbath. We’re at the highest point of fear and uncertainty now."

The real estate mauling is impacting the public stocks of office REITs: "caught in the downturn are tower owners including Dream Office REIT, Artis REIT and Morguard Corp., whose shares have dropped about 27 percent, 14 percent and 5.1 percent respectively over the past 12 months. The Standard & Poor’s/TSX Capped REIT Index is down 8.7 percent over the same period compared with a 8.2 percent drop in the broad S&P/TSX Composite Index. U.S. crude has dropped more than half since its peak in June 2014 to hover around $45 a barrel."

Some more examples of how the collapse in oil prices is spreading through the economy, which is on the verge of grinding to a halt:

Penn West Plaza, owned by developer Morguard, is among the buildings with empty floors. About 38 percent of its 621,628 square feet of office space is on the market for sublease, according to leasing documents. The going rate for the penthouse of the West tower is “negotiable” while occupancy is “immediate” for other floors, according to the ads. Morguard didn’t return phone calls and e-mails seeking comment.

 

Employment at Penn West Petroleum Ltd. shrank to less than 800 workers this year from about 2,250 three years ago. Athabasca Oil Corp., which eliminated more than 25 percent of its workforce last month, has been subleasing from Penn West and is also trying to find tenants to take some space off its hands, according to listings.

 

Even Calgary’s most iconic tower, completed just a few years ago, isn’t immune. The 58-story Bow, Canada’s second-largest office building at 2.0 million square feet, is owned by H&R REIT and leased until 2038 to Encana Corp., the real estate firm’s largest tenant by revenue. Encana subleases 1 million square feet to Cenovus Energy Inc., which in turn aims to vacate and sublease half of that, according to Reg Curren, a Cenovus spokesman. Together, the firms cut about 1,500 jobs this year, part of the 36,000 job losses at energy companies across Canada since the oil rout began.

Perhaps it is time for Canada to implement double seasonally-adjusted initial claims reports too and to pull a BLS, showing how despite reality, the job market is flying.

For now one thing is preventing an all out real-estate disaster: subleasing, but even that is at best cutting losses by half, with subleases done at 50% of the original cost. This had lead to rents dropping to C$20.75 a square foot in downtown Calgary, the lowest since at least 2006.

Subleasing is in overdrive and has helped buffer landlords from the impact of the oil slump. Avison Young’s Olcheski said he made his first quadruple sublease earlier this year, when a technology firm rented space from a company several leases removed from the main energy tenant.

 

But the subleases are being done at as little as 50 percent of the original cost, according to Damien Mills, executive vice president and managing director of Western Canada for JLL. Rents have dropped to C$20.75 a square foot in downtown Calgary, the lowest since at least 2006, according to the brokerage.

Which means one thing: more equity downside, and more layoffs: "Landlords now are forced to compete with somebody that’s looking for a very different return on their real estate cost," Mills said. Some owners are already feeling the pain. Two-thirds of Dream Office’s space in Calgary expires in the years up to 2019 and only 13 percent has been picked up, according to company documents.

"With a smaller tenant size relative to most landlords, we believe this reduces leasing rollover risk as these tenants tend to be leaner, resulting in less headcount reductions during an economic downturn," Rajeev Viswanathan, chief financial officer of Dream Office, said by e-mail. The company is also aggressively pursuing smaller tenants, he said.

But the worst news: another influx of soon to be completed office space means another 2 million square feet in rental availability are about to hit the market, sending rents to what may soon be record lows.

Artis REIT, which has 20 office buildings in Calgary with tenants including power generator TransAlta Corp., has 2.2 million square feet uncommitted starting in 2016, according to company documents. Artis executives didn’t respond to requests seeking comment.

 

In addition to the current glut of space, five office towers -- each with at least 430,000 square feet -- are due for completion in the next three years in Calgary, some only 36 percent leased as of October.

 

Olcheski, who’s worked in Calgary for about 10 years, is trying to remain optimistic amid the uncertainty. It’s going to be his best year yet for leases to smaller, non-energy tenants, for example.

What happens then? Nobody knows, or rather, only god does: "God only knows what’ll happen if oil doesn’t rebound," he said. "I try not to let that penetrate my mind" Olcheski concluded.

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Philo Beddoe's picture

What happens then? Nobody knows, or rather, only god does: "God only knows what’ll happen if oil doesn’t rebound," he said. "I try not to let that penetrate my mind."

Sticking your head in the sand is always the best course of action, pussy. 

VinceFostersGhost's picture

 

 

Pretty boy Trudeau will save them.....just kidding.....not really.

 

But he should amp up the bloodbath considerably.

Philo Beddoe's picture

I think Canada needs more immigrants. That should be priority number 1. 

XAU XAG's picture

Immigrants = Grunts

 

 

VinceFostersGhost's picture

 

 

I wouldn't be opposed to Canada taking over Michigan....and all the damn Syrians headed there.

 

 

Philo Beddoe's picture

Too late. Canada has fuck all for Gold reserves. 

Toronto Kid's picture

Canada has lots of gold reserves in the securest vault known to man - the ground. Any time the Canadian government wants a few tons, she has a mining company dig it out.

Philo Beddoe's picture

True. However, not so liquid when you got a FSA that needs breast feeding. 

I am more equal than others's picture

 

 

During the late 80's and early 90's oil prices dropped below $20/barrell.  The oil patch, Texas, Louisiana and Oklahoma, suffered greatly.  Look to that as a guide to what is about to happen to Canada.  It is going to get much worse than bad. 

 

pods's picture

Can't they just fake it until they make it like their Southern neighbor?

pods

kliguy38's picture

What happens then? Nobody knows, or rather, only god does: "God only knows what’ll happen if oil doesn’t rebound," he said. "I try not to let that penetrate my mind" Olcheski concluded.

Its not your mind they wanna penetrate douchebag

y3maxx's picture

....Canada should close its borders to Free Trade and become self sufficient....

ILike2Watch's picture

^^^ This a million times over. There is NOTHING Canada "NEEDS" from other countries. Closer-up and become the natural resource showcase powerhouse it can be.

armageddon addahere's picture

But people would have to go to work. Governments would have to stop depending on the slick trick, the quick fix and the gimmick. What are you some kind of libertarian fanatic? (sarkylert)

Okienomics's picture

Nothing Canada needs from other countries?  Except, oh, I don't know...

 

Coffee, tobacco, all tropical fruits (oranges, limes, lemons, bananas, pineapples, mangos...), avocados, cotton..  anything that doesn't grow in the tundra.

Herd Redirection Committee's picture

No cotton, but Canada DOES grow a lot of hemp!  And they grow Citrus in southern Russia (Abkhazia) so why not?

Truth is, Canada's policies have been dictated by mega-corps and the United States.

azusgm's picture

Go long greenhouses.

Worth it.

frankly scarlet's picture

Okie...Some say global warming is a corporate plot but on Canada's northern prairies the growing season in places is now 2 weeks longer allowing for the growing of new crops to these areas like corn.   "Oranges and lemons say the bells of St. Clements"

I_rikey_lice's picture

No Tobacco?

Hey Okie, you ever been to Tillsonburg?

Tillsonburg? My back still aches when I hear that word.

RockRiver's picture

^^^ This a million times over. There is NOTHING Canada "NEEDS" from other countries. Closer-up and become the natural resource showcase powerhouse it can be.

 

Except maybe vegetables.....

Tough growing season in the north lands.

quartshort's picture

Geothermal heat exchange micro gardens for the win? 

Unicorn meat?

Maxter's picture

Western Canada actualy grow a lot of fruits.  
Eastern Canada is good at growing vegetables.

What we need is enough storage space for the winter.

 

 

Oh and Fuck You Saudi Arabia! 

Vincent.Vega's picture

> There is NOTHING Canada "NEEDS" from other countries.

Conceptually, no country needs anything from anyone, all humans need are food, energy and shelter, everything else is for show-off or conspicuous consumption by the sheeple.

However, the Western sheeple have been fully supporting ("... our mercenaries" on their bumper stickers) and enjoying results of robbing colonies for the last 500 years -- and once the inflow of Chinese capital pumping up Canadian housing bubble was cut a little bit, Canada is going into a "recession" (politically correct version of "The Greatest Depression", since the sheeple are not quite ready to accept the reality yet).

 

 

Cohenada has always been a colony and a masonic project, even the "Remembrance Day" (aka Opium Poppy Day) falls on 11/11 and a two minute silence will be observed at 11 am.

http://www.bbc.co.uk/remembrance/how/silence.shtml

[...]

On the eleventh hour of the eleventh day of the eleventh month in 1918 the guns of Europe fell silent.

After four years of bitter fighting, The Great War was finally over.

The Armistice was signed at 5am in a railway carriage in the Forest of Compiegne, France on November 11, 1918.

Six hours later, at 11am, the war ended.

[...]

 

Is it not just mind-boggling how much those psychopaths focus on numbers, especially on EL-EVEN (EL is for Elohim)?

The goym scapegoat sacrifice to the Elohim and the coming Zionist Empire will be "remembered" for two minutes (11 + 2 = 13).

PS

Just wonder _when_ China is going to retaliate and make the BRIT-ish Jews pay for the Opium Wars.

Solon the Destroyer's picture

....Canada should close its borders to Free Trade and become self sufficient....


And...

 

This a million times over. There is NOTHING Canada "NEEDS" from other countries. Closer-up and become the natural resource showcase powerhouse it can be.

 

Outside of the trolls and the NSA plants, these two comments have to be two of the dumbest comments I have ever read on ZH.  I rarely log-in because this site loads like a 14th century blunderbuss, but I had to today.

300 yrs of economic thought and progress ignored. Bastiat is laughing his head off.  Completely ignores the market. Completely ignores reality.  Completely ignores the consumer.

How the fuck does this level of stupidity get over 20 upvotes?  What has happened to the audience at ZH?  When did the fucking socialists and protectionists take over?

And what the fuck makes you think there is free trade of any sort in Canada?

Because they put that label on an Agreement?

If there was truly Free Trade, an agreement would be unnecessary.  "Free Trade" Agreements are actually Protectionism, Oligopoly & Cartel Agreements that entrench corporate socialism.

Eeyores Enigma's picture

So which is it?

Prices need to go down so consumer confidence soars and everyone starts spending.

Prices need to go up so oil industry and all supporting industry confidence soars and they all start spending.

Can't have it both ways.

 

Pee Coil.

thecondor's picture

The first of next year, oil will start to rise.  Oil will be $75 by this time next year no matter the economic situation of the country. 

Maxter's picture

In Canada, the value of our currency is tied to the value of oil.

So when oil goes down, our currency also goes down, so the price of everything goes up.

I am no economist but it sems to me that high oil price is good for Canadians.

pitz's picture

Prices haven't been going up on Canada on account of severely truncated demand and little pricing power. 

Maxter's picture

I now pay 4$ for my fruit juice at the grocery store.  It was maximum 3.30$ before.  That's a good enough increase for me.

HungryPorkChop's picture

Yep, real estate prices fell like a rock in Texas when the oil bust happened in the 80's.  And it wasn't a gentle correction like 10% or 15%.  While it took several years of falling real estate prices around a 30% to 60% lower value was par for the course. 

The difference is back then interest rates were 8% to 16%. Today they keep real estate prices from dropping with ZIRP policies.   I'm sure its the same in Canada.

The banks knows this which is why they cannot raise interest rates by any measureable amount. 

duo's picture

you knew the bottom was in when everything had been foreclosed on twice.  Took until about 1992.

RaceToTheBottom's picture

The banks fucked up when they did not make use of the fake real-estate increase of the last few years and divest their bad mortgages.  

That was the purpose of debasing Accounting to keep that off the books till they could dump them.  I don't think that they dumped the mortgages and therefore Accounting cannot be reinstated.

At least the execs got their bonuses....

Dungeness's picture

Yes, I remember that.

This caused the Savings andLoan crisis in the late 80s. There are no longer any Texas banks: Texas Commerce, Republic Bank, Interfirst, etc. - all gone.

And of course, real estate went down.

Solon the Destroyer's picture

Canada has lots of gold reserves in the securest vault known to man - the ground. Any time the Canadian government wants a few tons, she has a mining company dig it out.

So no different really than any other country who has no reserves and still needs to buy them.  Not exactly useful in a sovereign debt crisis.

philipat's picture

So why are property prices not collapsing from stratospheric levels? Same question in Australia?

oddjob's picture

It's called a cheap dollar.

HungryPorkChop's picture

It's called ZIRP policies where a 30 year mortgage is 3.75%.  Cheap money and low interest rates are keeping da' game going and bubble intact. 

bania's picture

It's called a finite amount of land, duh!

FixItAgainTony's picture

with an infinite amount of property tax potential.

Bay of Pigs's picture

Not to mention that the public is brainwashed and deluded into believing that "RE never goes down". Canada's RE market did not correct in 2006-2009. It dipped and then took off with ZIRP and the lowest mortgage rates in history. Turned into a bubble and gong show.

The people there that are leveraged up in RE deserve what is coming.

Abbie Normal's picture

Those Canadian HGTV shows are a hoot!  Who else can afford $600K for an 80-yr old fixer upper row house in Toronto, and then put in another $200K to make it habitable?  Last I heard, Canadians don't make 3X the income of Americans.

Now that some of those shows have taken their act on the road, it's amazing what $200K will get in Durham or Atlanta instead.  Canadian real estate is so screwed...

Francis Marx's picture

No its called  spooffing oil up.  I can guarentee the US, Canada, oil producers hire 3 party spoofers to ramp up the oil, even though its coming out of everyones ears and no where to store it.

jeff montanye's picture

give it time.  real estate doesn't have to clear a market every day as do publicly traded stocks and bonds.

freedogger's picture

Yep, takes a year for EI benefits to expire.

highandwired's picture

I live in Alberta.  Everyone and their dog is up to their eyeballs in debt!  I see panic setting in.

These idiots keep thinking that owning a bigger and bigger house is a way to become rich.  I am in construction and the housing bubble in Alberta is just mind blowing.  People that are in the middle class are going in debt so that they can build themselves small castles which I will be taking apart in the future when these people will become so poor that they will be unable to heat these homes.  Remember, the winters here are very cold.  The stupidity is everywhere.   

Can't wait for this real estate bubble to burst so that I can pick up some cheap land, maybe a quarter or two. I remember the 90's recession in Alberta when oil was $10/barrel.  Life was hard.  This time around it will be much much worse!  Keep stacking.

 

 

bluskyes's picture

I worked in Regina for a year. It was great talking to the farmers. Here we talk about acres - 100 acres being a common farm size. In Sask is was how many quarter sections(~160 acres) guys owned. Some big farmers worked 40 quarters. I can't relate.

Abbie Normal's picture

The local news station recently interviewed a pawn shop owner in Calgary and he's up to his ears in $5-10K Rolexes for which he offers $500.  The most common comment he hears from those pawning their toys is that $500 will cover the car payment for another month.

Spitzer's picture

Prices have not moved. ZH keeps jumping the gun on Canada. And you bet I want it to collapse. But so far, nothings changed

Bay of Pigs's picture

Did you miss this?

"For now one thing is preventing an all out real-estate disaster: subleasing, but even that is at best cutting losses by half, with subleases done at 50% of the original cost. This had lead to rents dropping to C$20.75 a square foot in downtown Calgary, the lowest since at least 2006."