Calgary turns empty offices into residences
Experts say other cities should follow
• No community anywhere would willingly choose to have a nearly 30 per cent office vacancy rate in its downtown core.
But faced with that problem, one Canadian city came up with a plan that is now being held up as a model for the rest of the country amid an ongoing national housing crisis.
Calgary has been busily working to convert underused office towers to residential housing, thanks to the city’s one-of-a-kind incentive program for developers.
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 underused 10-storey office building into 112 residential apartment units, is nearly complete and expected to open early this year. Several more projects are under construction.
Proponents say the early success of the program has shown that office-to-residential conversions can work, and that the idea can be part of the solution in a country facing a massive shortfall in housing inventory.
“I think this can work in any major city. Especially any major Canadian city, because in my point of view, we’re all struggling with providing enough homes,” said Walsh Mannas, a principal with commercial real estate firm Avison Young, of Calgary’s downtown development incentive program.
“Any market where municipalities are going to incentivize residential development, I think could have success with this in various degrees.”
Calgary’s downtown development incentive program, which offers $75 per square foot to building owners willing to convert underused office space to residential apartments, is unique to North America.
It was launched in 2021, at a time when the city — home to more corporate head offices per capita than anywhere else in Canada — was reeling in the wake of an extended downturn in oil prices and the COVID-19 pandemic.
Commercial property values in the city’s core had collapsed due to a wave of energy sector layoffs and consolidation that had left close to a third of Calgary’s downtown office space empty.
Desperate to fill nearly 13.5 million square feet of unoccupied space and boost its dwindling tax base, Calgary launched the incentive program with the goal of removing six million square feet of empty offices from the city’s downtown by 2031.
Sheryl Mcmullen, who manages the program for the City of Calgary, said it was unclear at the time what the reception would be.
But the program turned out to be so popular that in October 2023, the city was forced to press 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 10,” she said. “We ended up getting 15 in just the first round. So we knew we’d done something right when we had that number of building owners interested.”
Canada is in the midst of a housing crisis. One estimate from the Canada Mortgage and Housing Corp. suggests an additional 3.5 million new units must be built by the end of the decade to supply affordable housing to the people who need it.
Office-to-residential conversions aren’t a silver bullet, said Greg Kwong, Alberta managing director for commercial real estate firm CBRE, but they can be a piece of the puzzle. He pointed out many cities are grappling with an excess 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 that we have to be pulling to get our downtown cores more vibrant and alive again,” Kwong said.
“This is a problem that will affect more cities than just Calgary.”
In the third quarter of 2023, Avison Young statistics show Vancouver and Toronto both 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 sits empty.
Ken Toews is senior vice-president of development with Calgary-based Strategic Group, a developer that has previously completed three office-to-residential projects in Alberta without the help of an incentive program.
While he is an unequivocal fan of the model, Toews said most prospective conversion projects require some kind of government support to make financial sense.
“There are a lot of design issues, and a lot of developers won’t touch them because they’re just too challenging.”