Federal government’s plans to convert commercial properties raise questions

The federal government thinks it can address the country’s red-hot housing market by having property owners convert commercial buildings, left vacant due to the pandemic, into livable spaces, but industry watchers question whether that plan is realistic.

The Liberals, in Monday’s federal budget announcement, indicated that $1.3 billion of previously announced funding will be reallocated to create more homes. Of that, $300 million will be dedicated to converting vacant commercial properties into 800 units of market rental housing.

“As the demand for retail and office space has changed due to COVID, some landlords, particularly in major urban cores, are facing higher vacancies,” the budget stated. “This is an opportunity for property owners and communities to explore converting excess space into rental housing, enhancing the livability and affordability of urban communities.”

Qaiser Mian, senior director of research, valuations and advisory at Altus Group Ltd., said hotels would seem to be the most optimal type of commercial property to make such a change.

“The feasibility has to start from more of a macro view,” he said. “The location of the property, the physical attributes of the property, the proximity to complementary facilities, and amenities. If that checks all the boxes, then you have to look at the actual construction of the building you want to convert and how much additional work you have to do.”

A hotel guest room, he said, already has a bathroom, living space and heating, ventilation and air conditioning (HVAC) unit, as well as fairly wide corridors and elevators, so all it really needs to be a functional home is a kitchenette.

But a big problem with converting office spaces is planning, since those buildings don’t have sufficient plumbing to support housing units, and a developer would have to account for that when adding suitable kitchens and washrooms.

“That can be a prohibitive cost,” Mian said, adding that’s especially the case for property owners who took a hit during the pandemic.

Office spaces do have an advantage in that their open-floor concepts can allow developers to create a variety of unit sizes, whereas hotels are restricted to existing room sizes unless major renovations are done.

Even though office space vacancies have risen nationally over the past four quarters, it’s still too early to tell if the death of the office warrants a rampup in housing conversions, Mian said.

In the first quarter of 2021, downtown office vacancies across the country rose to 14.3 per cent, up from 13 per cent the previous quarter, according to CBRE data.