With Calgary’s downtown office vacancy rate stuck in the 25 per cent range, many real estate experts have suggested converting empty space in the Central Business District into residential use as one solution for the market.
But landlords and property owners haven’t been stampeding to actually follow through on that strategy. RENX has learned only five buildings during the past two years have been converted from office to rental in inner-city neighbourhoods such as Southwood, Beltline, South Calgary, Eau Claire and Tuxedo Park.
And, there are no further conversions planned, at least for the short term.
“We don’t have any in the queue right now, nothing in the queue at this moment,” said Sonya Sharp, the City of Calgary’s team lead, business and local economy, in an interview with RENX. “These (five buildings) are the ones that have been completed.”
According to commercial real estate firm CBRE, the downtown Calgary office market has an inventory of 42.3 million square feet across a total of 148 buildings.
That means about 10 million square feet of vacant space. So why haven’t there been more conversions?
Challenges repurposing office to residential
At the recent Calgary Real Estate Forum, a session highlighted the challenges landlords face in repurposing those offices to residential uses – Giving Older Assets A New Life: A Look at Repurposing Existing Properties & Sites.
Six buildings in the downtown core are more than 75 per cent vacant, while three buildings are empty said Greg Kwong, CBRE‘s executive vice-president and regional managing director in Alberta.
“People from the city and other people want to say ‘what are the solutions to getting our vacancy down, let’s repurpose half of downtown Calgary.’ It’s really just not possible given the current vacancy right now,” said Kwong.
In the suburban office market, 11 buildings are greater than 75 per cent vacant and nine buildings are 100 per cent vacant. There are 366 buildings in the suburban Calgary office market with a total of 25.8 million square feet.
“Even if we took (the completely vacant buildings) and converted them to condos – took them out of the office market – we still would have a very high vacancy rate,” Kwong added.
Also during the forum, Marco Civitarese, Calgary’s chief building official and manager, said the age and classification of a building is important in how it could be repurposed.
City tries to remove red tape
On June 13, 2017 Calgary council approved an initiative called the Centre City Enterprise Area. The directive made a number of amendments to a land use bylaw, removing significant barriers to save businesses thousands of dollars if they choose to open or relocate into the Central Business District.
The initiative was developed in collaboration with Calgary Economic Development, city administration, BILD Calgary, NAIOP, local business improvement areas, community associations and small businesses.
“The strategy behind it is really to increase vibrancy in the downtown. Gain some activation to residential living and repurposing buildings that are facing the crunch of vacancies right now,” said Civitarese.
During the real estate forum, Brian Rowland, associate with Zeidler Architecture, said architects can face design challenges in these conversion projects. These include existing layouts, windows that don’t open, and how exteriors are designed to suit the original purpose of the building.
“Usually they don’t include a bunch of vents. So they’re not anticipating 12 or 14 kitchens, and bathrooms, and washer/dryers on every floor,” he said.
Then there are surprises that are not anticipated in the architectural drawings.
“You start cutting into these buildings and finding these surprises you have to deal with as you go through. So it does create a new challenge,” Rowland explained. “The idea is just that we can take something that’s existing and repurpose it and really make it into something that’s contributing again to someone’s portfolio of holdings.”
Strategic Group’s office conversions
Ken Toews, senior vice president of development for Calgary’s Strategic Group, which has been busy converting office space to residential use in both Calgary and Edmonton, said it has been involved in six conversions.
He said while conversions are important to add residential space in downtown Calgary, for property owners they can take a non-performing or low-performing asset and convert it to a much more attractive asset.
“Why can’t we do more of these? Well, there’s a whole bunch of challenges that come when you’re repurposing a building. The first challenge is that the residential floor plate is almost always different than what you have for an office floor plate. So you have to really work with it to make it work,” said Toews. “And most buildings, it won’t.”
Even with the success of its conversions however, several weeks after the forum Strategic Group announced it was putting 56 of its Alberta properties under creditor protection.
The assets are primarily office buildings in Calgary. The challenging real estate market and continued uncertainty in the economy were cited as the reasons for the move.
New flexibility for vacant offices
Under Calgary’s Centre City Enterprise Area plan, businesses no longer require a development permit for changes of use, exterior alterations and small additions in the Beltline or Downtown for a three-year period (ending July 1, 2020).
Sharp said the Centre City Enterprise Area is a mapped out area of the downtown and into a small area of the Beltline to reduce retail and office vacancies in the core.
The city also wanted to make it easier to allow pop-up and interim uses in vacant office spaces.
“Pop-up uses are uses in approved buildings and no approvals are required. So a retail store can go in and out as long as they aren’t breaking any code rules,” said Sharp. “An interim use is up to six months and we’ve waived the development permit, and we’ve waived the business licence, and they would only be required to get a building permit if the building had been vacant more than six months or they’re doing any changes inside the building that will be required to get a building permit.
“We focused on the city wide for that because we have vacancies all over the city. We wanted to animate city spaces citywide. We wanted to provide opportunities for businesses to try out their product without having to go through all the city permits. It was an opportunity to reduce barriers and costs of starting a business in Calgary.”