Calgary transforms old offices into apartments; Experts say other cities should follow

No community anywhere would voluntarily choose to have a nearly 30 percent office vacancy rate in its downtown.

But faced with that problem, a Canadian city came up with a plan that is now being presented as a model for the rest of the country in the midst of a current national housing crisis.

Calgary has been working hard to convert underutilized office towers into residential housing, thanks to the city’s first-of-its-kind developer incentive program.

In just two years, the program has resulted in the approval of 13 office-to-residential conversion projects, with four more still under review.

The first project, the $38 million conversion of an underutilized 10-story office building into 112 residential apartment units, is nearly complete and is expected to open early this year. Several more projects are currently under construction.

Proponents say the program’s initial success has shown that office-to-home conversions can work and that the idea can be part of the solution in a country facing a huge shortfall in housing inventory.

“I think this can work in any major city. Especially any major Canadian city, because from my point of view, we’re all struggling to get enough housing,” said Walsh Mannas, director of Calgary’s downtown development incentive program at commercial real estate firm Avison Young.

“I think any market where municipalities are going to incentivize residential development could be successful with this to varying degrees.”

UNIQUE IN NORTH AMERICA

Calgary’s downtown development incentive program, which offers $75 per square foot to building owners who want to convert underused office space into residential apartments, is unique to North America.

It opened in 2021, at a time when the city — which is home to more corporate headquarters per capita than anywhere else in Canada — was reeling from a prolonged drop in oil prices and the COVID-19 pandemic.

Downtown commercial property values ​​had collapsed as a wave of layoffs and consolidation in the energy sector had left about a third of downtown Calgary’s office space empty.

Desperate to fill nearly 13.5 million square feet of vacant space and increase its shrinking tax base, Calgary launched the incentive program with the goal of removing six million square feet of empty offices from its downtown core by 2031.

Sheryl McMullen, program director for the city of Calgary, said it was unclear at the time what the reception would be.

But the program proved so popular that in October 2023, the city was forced to pause after reaching its $253 million funding threshold.

“When we launched the program, we didn’t know if we were going to get one application or ten,” he said.

“We ended up getting 15 in the first round alone. So we knew we had done something right when we had that number of interested building owners.”

CANADIAN HOUSING CRISIS

Canada is in the middle of a housing crisis. An estimate from Canada Mortgage and Housing Corp. suggests an additional 3.5 million new units must be built by the end of the decade to provide affordable housing to people who need it.

Office-to-housing conversions aren’t a silver bullet, said Greg Kwong, Alberta managing director of commercial real estate firm CBRE, but they can be a piece of the puzzle.

He noted that many cities are grappling with a glut of downtown office space in the wake of the pandemic and the work-from-home trend.

“It’s not the overall panacea, it’s just one of the many levers we have to pull to make our city center more vibrant and alive again,” Kwong said.

“This is an issue that will affect more cities than just Calgary.”

NATIONAL PROBLEM

In the third quarter of 2023, Avison Young statistics show Vancouver and Toronto had downtown commercial vacancy rates of 12.5 per cent, while Ottawa had a downtown vacancy rate of 14.7 per cent.

In both Edmonton and Montreal, more than 20 per cent of available downtown office space is empty.

“The office market in Toronto, Vancouver and Montreal is still in a much better position than Calgary, but these cities are also struggling in the post-COVID office market,” Mannas said.

“I think it will take time to analyze what the new reality of vacancies is, and depending on how much those vacancies grow, the transition from office to residential becomes an even better opportunity.”

Ken Toews is senior vice president of development at Calgary-based Strategic Group, a developer that previously completed three office-to-residential projects in Alberta without the help of an incentive program.

While he is an unequivocal supporter of the model, Toews said most potential conversion projects require some form of government support to make financial sense.

“Office buildings were never intended to be converted into apartments,” said Toews, whose company is now in the process of converting a vacant office tower in Calgary called the Barron Building into residential rental suites.

“There are a lot of design problems and a lot of developers won’t address them because they’re too challenging.”

Converting an office tower into an apartment building requires getting creative and finding solutions for oddly shaped floors, unusually located elevators and, in some cases, missing windows, Toews said.

But while these complications can make office conversions expensive, they still take much less time than building a new building from scratch.

Toews added that they also have a much smaller carbon footprint than new construction and have the added benefit of bringing new life and vitality to tired downtown areas.

As more conversions are completed and developers and architects gain more experience, a wider variety of buildings will become viable candidates, Toews said.

He said he has already been approached by developers from across Canada looking to learn from Calgary’s experience.

“We know this is part of the solution to the housing crisis, and it can probably work in any city if the city is willing to offer an incentive,” Toews said.

“We have a big challenge in this country with housing and I think we have to really dig deep and make sure as many people as possible are working on it and be creative with our solutions.”


This report by The Canadian Press was first published Jan. 7, 2024.

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