The downtown Calgary office market remains very strong relative to trends evident through the early to mid-1990's. Following a period of where vacancy peaked at over a 20% in the early 1990's, restructuring in the energy sector and strengthening of the provincial and local economies contributed to significant improvement to the office market place.

The market gradually improved from 1993 to 1995 as compared to the ultimate lows experienced a few years earlier. Vacancy declined from 17.8% reported at year end 1993, to 14.6% two years later. Rents remained relatively static during this time frame. Significant improvement did not occur until 1996 when the overall vacancy rate decreased to 10.2%, with over 1.26 million square feet absorbed. As a result of strong demand and a rapidly decreasing inventory of available space, office rents began to escalate.

In 1997 the overall office vacancy rate in the downtown core decreased at a very rapid rate. Approximately 1.653 million sq. ft. of vacant office space was absorbed. This represents the greatest absorption rate witnessed in over 15 years. Strong tenant demand lead to rapid rent escalations. Continued absorption and decreasing vacancy created a "landlord's market" whereby higher rents were being achieved in all classes of office product.

Market dynamic changes were evident in 1998 when the negative absorption first began to occur in the latter part of the year. Relative to downtown office vacancy and absorption statistics since the early part of 1998, the following chart applies:

OVERALL DOWNTOWN OFFICE VACANCY - 1998 TO PRESENT DAY (According to Building Class)
Bldg. Class	Total Inventory (million sq. ft.)	% Vacant 12/98	% Vacant 03/99	% Vacant 06/99	% Vacant 09/99	% Vacant 12/99	% Vacant 03/00	% Vacant 06/00
AA	5.203	7.4	7.8	7.0	1.1	11.79	11.10	12.60
A	10.653	5.9	7.1	7.3	8.8	9.71	9.65	9.76
B	9.381	4.4	7.3	7.7	6.8	6.92	7.77	7.82
C	4.384	11.3	14.5	12.5	11.4	13.81	13.19	10.67
D	0.403	22.7	29.8	40.4	28.3	25.64	22.59	22.24
TOTAL	30.023	6.7	8.7	8.6	7.8	10.00	10.00	9.90
Note: Total surveyed area increased from 28.80 million to 30.02 million commencing with the 12/99 survey results. The increase is attributable to the inclusion of the new Bankers Hall West & Ernst and Young buildings

The overall vacancy rate increased from 4.4% to 6.7 % during the 1998 calendar. While rental rates continued to increase through the first quarter of the year, stabilization occurred by mid-year, with definite softening evident during the last half of the calendar year. While minimal positive absorption occurred during the first half of 1998, negative absorption in the latter part of 1998 resulted in a total increase in vacancy of over half a million square feet for the year. In particular, the emergence of substantial sublease space created softening in the market place. The reduction in office demand came about as a direct result of a general slow down in the local and provincial economies and slumping oil prices.

Further softening occurred during the first quarter of 1999, whereby negative absorption of over half a million square feet increased the overall vacancy rate to 8.7%. By the third quarter of the year, two successive quarters of positive absorption decreased the overall downtown vacancy rate by a approximately 0.9%. Although additional sublease space was brought onto the market during this time period, significantly more space was absorbed. Overall vacancy increased form 10.0% by year-end 1999. The increase is entirely attributable to the inclusion of the new Bankers Hall West and Ernst & Young office towers to the downtown inventory.

Overall absorption through the first half of 2000 has been negligible. The overall office vacancy rate decreased slightly from 10.00% reported at year-end 1999, to 9.90% by mid-year 2000. Any positive absorption which has been achieved has been offset by the addition of significant sublease inventory. In total, net positive absorption of only 22,944 sq. ft. has been realized in 2000. Telecommunications and hi-tech companies are driving headlease demand and appear to absorbing space at a slightly faster pace than energy sector companies. With respect to the increase in sublease inventory, the bulk of this space is located in the central core district.

Given the dynamics of the downtown office market, current face rents in the prime central core area range from $18.00 to $26.00/sq. ft. net in "AA" and "A" buildings, $10.00 to $18.00/sq. ft. net in "B" buildings, and $8.00 to $14.00/sq. ft. net in lower quality "C" buildings. On a "net effective" basis, "AA" and "A" rents range from $13.00 to $22.00/sq. ft. net, while "B" and "C" rents range from $9.00 to $16.00/sq. ft. and $6.00 to $10.50/sq. ft., respectively.

With respect to the addition of new office inventory to the downtown core, there are three "AA" buildings of note. Two are fully complete, with the TCPL Tower anticipated to be ready for occupancy by early 2001. The new office inventory under development, or completed, is summarized as follows:

NEW OFFICE DEVELOPMENT
Building	Rentable Area	Pre-Leasing Achieved to Date	Occupancy in relatively stable. Sources: Survey information as published by CB Richard Ellis in their "Calgary Market Index Brief: Downtown Office Properties" and Colliers International's "Office Reports".