In 2023, when Calgary announced that vacant downtown office buildings would be converted to residential units, the sentiment was optimistic. Now, “Rising costs stall historic downtown Calgary conversion project, contractors unpaid” is the eye-catching headline.Â
“In the grand scheme of things, adaptive re-use for housing is still good policy,” said Sasha Tsenkova, a professor of planning at the University of Calgary. “It’s not just about the economic return on investment. It’s also about social and environmental sustainability.”
The pandemic and subsequent shift to hybrid work have affected nearly all cities. But Calgary, which had already been suffering a pre-pandemic office downturn, now leads Canada with a 30 per cent downtown office vacancy rate.Â
The city has responded by aggressively pushing office-to-residential conversions. In doing so, it’s shown the strategy’s highs and lows and the need to make conversions part of a broader urban planning framework.
‘Major escalation’ in costs
On paper, office conversion is attractive to developers. According to a report by the Altus Group, a Calgary-based real estate consultancy, an office-to-residential conversion should only cost 75 to 80 per cent of a new development while taking less time to build.
The City of Calgary has facilitated the office conversion process by offering “flexibility in building code requirements where appropriate,” streamlining its review and approval process and building a “dedicated City team supporting office conversion projects from start to finish,” the city told Canadian Affairs.
Further sweetening the deal, the city offered successful applicants a $75 per sq. ft. incentive, paid upon project completion. The number of project applicants exceeded available funding, prompting the city to winnow down candidates based on applicants’ experience, project readiness, financial capacity and other factors.
The Cornerstone, once home to an SNC-Lavalin office, opened 112 residential units this month. The city will reimburse its developer, People First Developments, $7.8 million of its $38 million investment.
Another nine conversion projects are in progress, while three more are scheduled. These will “create over 1,500 homes for Calgarians while increasing vibrancy in Calgary’s downtown,” the city said.
But if the Cornerstone highlights the success of the city’s strategy, the Calgary-based Strategic Group’s conversion of the Barron Building skyscraper has illustrated the potential pitfalls.
The Calgary heritage site’s conversion — from an office into a building that offers 118 rental suites plus ground floor retail space — has stalled amidst allegations that Strategic owes contractors hundreds of thousands of dollars.
Ken Toews, Strategic Group’s senior vice president of development, detailed some of the “many technical and engineering issues” and “expensive surprises” that emerge when converting a heritage building.
At the Barron these have included the need to expand elevator shafts, rebuild the stairs to code, convert the basement to a parkade, improve power capacity, and reinforce structural support and install ductwork, Toews says. And all of this must be done without compromising the building’s historic façade.
The Altus Group’s report noted that conversion projects often need to rework old mechanical and electrical systems, and otherwise make potentially expensive adjustments for residential use. Even making windows openable is a hurdle to be cleared.
Toews also pointed to a “major escalation” in construction costs due to higher transportation, labour, supplier and material costs.
“Strategic Group is committed to completing the Barron restoration,” Toews said, adding the building is slated to open in 2026.
“[W]hile some office conversion projects may be exceptionally challenging, other projects under construction are proceeding according to plan at this time,” the city told Canadian Affairs.
Inclusive approach
Once office-to-residential conversion projects are completed, just who is welcomed through their doors?
Critics have raised concerns that converted units will simply be used as Airbnbs, like so many units before them, doing little to alleviate Calgary’s housing crunch.Â
“Generally, rental agreements preclude the ability to sublet through short stay platforms,” the city said in response to a question about these concerns.
Some converted buildings will blend non-profit, below-market and market-value unit pricing. For instance, 40 per cent of the Cornerstone’s units will be rented at 20 per cent below market rates.
Tsenkova argues such blends are preferable to purely non-profit housing.
“It creates a more inclusive approach. We don’t want to segregate people by income or social challenges into single-purpose buildings. That concentrates a lot of households dependent [on social services] in the downtown core.”
“It’s important to have a mix of people who call downtown home. Young people, students, families, seniors. People who work downtown. This requires a lot more than just property development,” she said.
Among other things, these residents need services in the area, like places to shop and eat. Some may need social assistance.
“We have a massive concentration of crime and drug addiction and homelessness. Downtown needs to be treated as a whole,” Tsenkova said.
“There are no schools downtown. How do you attract families? Sports, museums, there’s a lot we can do.”
Longer mandate
The units created from office-to-residential conversions, while valuable, will not single-handedly solve Calgary’s housing crunch and office vacancy issues. Other efforts have included the 2022 conversion of a Calgary hotel into non-market housing for seniors, and some office buildings are being targeted for long-stay hotel suites.Â
All of these projects need to be considered within broader revitalisation efforts, Tsenkova says.
“We need to have a longer mandate to retain and reinforce the vitality of downtown … There’s a lot we can learn from cities where urban regeneration has been practiced with vigour for decades, to ensure we look for more than a quick economic return.”
Tsenkova cites Chicago’s use of old offices for artistic spaces and non-profits as an attractive model.
Other Canadian municipalities are likely to look to cities that have successfully implemented office conversion strategies for lessons. Toronto’s office vacancy rate is 18 per cent. Winnipeg’s is expected to hit 19 per cent.Â
While Bloomberg reported in April that downtown vacancy rates have declined in some cities, hybrid work models are expected to persist. The issue of what to do with empty offices is not going away.
Revitalisation decisions made today must serve the imminent needs of a city’s residents and businesses, but they must also look to the city’s future.
“[F]inding new uses for office buildings is central to the vitality of downtowns. We need to find a way to make it work,” said Tsenkova.
“Once you lose the downtown, the cycle of urban decline kicks in very quickly. It’s difficult to bring back.”
