Oil-rich Calgary sees the downside of prosperity
CALGARY, Alberta — In this Canadian city flush with new oil riches, residents drive 600 miles west to Vancouver to purchase Ferraris and Maseratis. At the upscale Living Room restaurant, patrons who two years ago ordered $80 bottles of wine have traded up to $300 vintages. This month, a two-bedroom house in the pastoral southwest part of town went on the market for $12 million — by far the highest price ever sought for a home in the Calgary city limits.
But the oil boom is overwhelming Calgary, a city of 1 million famous for hosting the 1988 Winter Olympics. Amid an extreme labor shortage, a lack of affordable housing has increased the homeless population to about 3,500 — a 32 percent jump in just two years. Companies are elbowing one another out of the way for office space. Developers, stung by higher costs, are planning few new buildings to ease the crunch.
Josh White, president of Calgary Urban Initiative, an advocacy group, notes that while plenty of laborers have moved to Calgary to find work, some are forced into hotels and tents. “We’re a prosperous city, but we’re growing shanty towns around us like a third-world country,” he says.
Peter Blair lost his apartment lease in June, he says, when his landlord cashed out of her rental property investment after just one year. Blair, a busy 43-year-old painter and construction foreman, ended up homeless. Eventually, he pitched a tent at the KOA Kampground on Calgary’s west side.
“Money isn’t the problem,” said Blair recently, showing off the $1,800 Canadian he carried around in hopes of finding a new lease. “Getting the place is the problem.”
In the past year, 25,000 people moved to Calgary — about 70 people a day. Demand for property, both residential and commercial, has far outstripped supply.
But even with all the newcomers streaming in, the city still doesn’t have all the workers that it needs — and won’t for many years to come. The Conference Board of Canada recently estimated that Alberta will face a shortfall of 332,000 workers by 2025.
As the front-office headquarters for Canada’s oil and gas industry, Calgary is the gateway to one of the world’s greatest petroleum troves: the tar sands of Alberta Province. Companies have only recently begun to tap these oil-rich mineral deposits in earnest, as the tripling of crude to above $70 a barrel in recent years has set off a black-gold rush here. The city is being swept up in what is expected to be one of the energy industry’s largest capital-investment blitzes ever, joining the likes of Moscow and Riyadh.
The surging economy, along with relatively low interest rates, has made Calgary one of the hottest real-estate markets in the world. While many first-time homebuyers have been boxed out of the market, they’re outnumbered by oil-industry newcomers who don’t flinch at the higher prices.
When Marla Nystrom-Smith, 30, and her husband Tyler Smith, 29, an actuary, put their three-bedroom condominium on the market in February, 40 potential buyers materialized in a day. Five, they say, made offers — all above the $234,900 asking price.
Commercial office space is also tight. Calgary’s office vacancy rate, at about one-half percent, is among the lowest of any city in the world, according to CB Richard Ellis, a real-estate-services firm. The city currently has about 46 million square feet of commercial space. That dwarfs the 14 million square feet in Oklahoma City, which has a comparable metro-area population. While four office towers are scheduled to open next year, all of that space is already leased. The offices those tenants are vacating are also already spoken for.
With a dearth of construction workers and a slow permitting process, it can take three years to put up a new building in downtown Calgary. Workers across Canada often snub traditional construction gigs in favor of jobs in the oil sands 400 miles north of Calgary. Jobs there pay more and offer incentives such as free flights home each month.
The labor that is available is becoming more expensive. Construction supervisors in Calgary who made $65,000 last year can now command $95,000 from rival construction companies desperate for experienced managers.
Developers have applied for permits on 12 additional office buildings downtown, though only six projects are moving forward so far. “Not soon enough,” says Greg Kwong, a Calgary-based regional managing director for CB Richard Ellis. “We’re playing catch-up now. Everything happened so quickly.”
Because most commercial space is signed for long-term lease, usually five or 10 years, a company looking for an office in 1994 could have found top-quality space for $6 to $8 a foot. Ten years later, in 2004, those same digs would have cost around $20 per square foot. But if a prospective tenant dallied and waited until mid-2005, Kwong says, the sticker shock would have been greater still: about $30 per square foot.