The crash in oil prices will hammer office leasing in Calgary and Vancouver and will have little effect on the retail sector but is already.

The crash in oil prices will hammer office leasing in Calgary and Vancouver and will have little effect on the retail sector but is already proving a boon to multi-family investors, according to realtors and analysts close to the action.

The price of West Texas Intermediate (WTI), the North American oil standard, had plunged to US$44.46 as of January 27, down nearly 50 per cent from three months earlier. Western Canada Select (WCS), the benchmark for the Alberta oilsands, is trading at US$39.68 a barrel – the cheapest oil price in the world – down from US$86 a barrel just a year ago.

But sinking oil prices also spurred the Bank of Canada to cut its overnight lending rate from 1 per cent to 0.75 per cent, which has made commercial mortgage lending less expensive.

“It is not $40 oil that is the important number, it is 2.3%,” said Bob Dhillon, founder and CEO of Calgary-based Mainstreet Equities Inc. citing the 10-year mortgage rate now available for landlords financing multi-family buildings.

This month, Dhillon bought a 331-unit Surrey apartment building for $33.7 million and said he is looking for other opportunities. The capitalization rate on Metro Vancouver apartment buildings is in the 4 per cent range. “When you can borrow 10-year mortgages at 2.3% that is free money,” Dhillon said. The low rates for landlords are available on mortgages insured through Canada Mortgage and Housing Corp.

Kelowna-based real estate developer Renee Wasylyk also sees a silver lining in the dark oil clouds. The president of Troika Developments, which is completing residential projects in the Okanagan and commercial building and a housing development in Edmonton, says there are benefits to cheap energy.

“Low oil prices affect the consumer very positively,” Wasylyk said. “It stimulates a lot of spending when you don’t have to go spend $150 at the gas pump every 10 days.” She added that cheaper oil and the resulting lower Canadian dollar, which has shed about 15% in value against the American dollar in the past month will also prove a boon to exporters and manufacturers, which will support the real estate market.

Consumer confidence will also keep the retail market afloat, said Rob Walker, a retail real estate specialist with Colliers International in Calgary. Calgary has an inventory of 27.9 million square feet of shopping centre retail space and only 1.8 per cent is vacant. Alberta retail sales per capita average $1,604 – 34% above the national average and 33% higher than in B.C.

Walker doesn’t see that changing. A Colliers study shows that even in 2008 when the WCS price fell below US$40 a barrel “Calgary retail vacancies didn’t flinch.”

It is different story in Calgary’s office sector, where the downtown vacancy rate has risen to 8.52%, up from 7.7% in the third quarter of 2014, according to Colliers. The vacancy rate could rise if more sublease space is pushed back onto the market, Colliers cautioned. Calgary currently has about five million square feet of new offices under construction, including the 56-storey Brookfield Place that is expected to reach the market within two years.

Metro Vancouver’s office vacancy rate is already nudging 10%, the highest level in a decade, as two million square feet of new space is underway in the downtown alone. Lower oil prices will affect B.C.’s liquefied natural gas sector, which in turn could cool office leasing, analysts caution.