Office conversion to housing costly, say developers
Nancy Lanthier
Special to The Globe and Mail
Published 4 hours ago | Updated 2 hours ago
On paper, the case for converting office buildings to residential apartments is compelling.
Two recent reports indicate that across Canada, scores of office buildings could be candidates for conversion.
According to a
report by the Canadian Urban Institute, which delves into conditions that enable conversions – such as building type, city policy and market viability – 130 buildings in 11 cities could be converted into 22,000 housing units.
A broader approach by commercial brokerage Avison Young suggests about one-third of office buildings in major cities could be converted.
This bounty includes every building with two “anchoring criteria” for conversion: small and old.
Smaller floorplates work better for conversion because apartment units can flank windows without bowling-alley depth; older is better because newer glass towers can pose all manner of challenges, such as how to connect apartment walls to the glass exteriors.
According to Avison Young’s
research, Toronto has 923 such potential-conversion buildings; Calgary has 521; Ottawa, 286.
Both reports lean into multi-faceted benefits of turning office buildings into housing. Cities could simultaneously solve two issues – rising office vacancy and growing demand for housing. In the process, they could limit demolition waste and revive downtowns.
“Let’s take our blinders off and think about what the future could look like for Canadian cities,” says Sheila Botting, principal and president of Americas Professional Services at Avison Young.
“It’s about the art of the possible.”
On the ground, however, some of the few developers who’ve completed office building conversion are wary of how difficult and pricey the work can be.
Oz Drewniak, president of Ottawa-based CLV Group Developments, has checked out more than a dozen potential building candidates in the last year and a half but each presented unsolvable problems.
Most were too technically challenging or had too much occupancy, he says. Or the city’s sewer infrastructure wasn’t compatible for heavier residential use. On some sites, the environmental inspection or seismic assessment didn’t pan out.
Three years ago, CLV launched the conversion of a vacant, 1970s 11-storey office building in the downtown area into 153 luxury rental suites.
“We’ve learned a lot, so the next one should theoretically be easier. But it’s a challenge to find the right conditions out there,” says Mr. Drewniak.
“I know of developers who have purchased empty buildings, but they’re sitting on them because they can’t figure it out. When you start looking at the cost, it’s very expensive. Everybody thinks, ‘oh, an existing building? That’s easy. You just throw some new residential units in it.’ But it’s not like that.”
Mr. Drewniak says demolition and construction from scratch would have been easier – while the cost would have been “pretty much the same.”
What was saved by reusing the structure was spent on “all the time and work just to get it ready for a new use.” For example, everything had to be ripped out, he says. “There wasn’t one pipe left.”
Since offices use a higher electrical voltage, an all-new electrical system was required, and as for plumbing, a residential building requires magnitudes more load capacity for bathrooms, dishwashers and washing machines in every unit.
The new systems also required 1,700 new holes drilled through eight-inch concrete.
“It was a tremendous amount of drilling,” says Mr. Drewniak. “Weeks of drilling.”
In Calgary, where downtown office vacancy of 32 per cent includes eight empty buildings, the expense, complexity and sheer work involved in office conversion has discouraged commercial property owners. In 2021, the city kick-started the process by offering financial incentives with the Downtown Development Incentive Program.
“We realized that most building owners weren’t taking the initiative on their own to repurpose their vacant office towers,” a Calgary official recently explained to the Lincoln Institute of Land Policy.
Now, 10 projects are in the works because developers can take advantage of city grants of $75 per square foot up to $15-million per project. The funds aim to cover about one-third of the cost of conversion.
Before the grant, two conversions that had taken place (assisted by government funding); both cost roughly one-third more than ground-up construction.
One of the new grant recipients, Aspen Properties, plans to convert 11 floors of an office building into 176 residential units.
“We wouldn’t be doing this if it weren’t for the incentive program because the returns are not there otherwise; it wouldn’t make economic sense,” Aspen’s chief executive officer Greg Guatto told Calgary’s Building Owners and Managers Association.
Peoplefirst Developments, owned by Calgary-based Astra Group Corp., was the first grant recipient. Maxim Olshevsky, the company’s chief executive officer, says the subsidy, along with expedited permitting that removed considerable carrying costs, made the firm’s eight-storey Cornerstone conversion viable.
Yet even given that “crazy-fast” process, Mr. Olshevsky says the retrofit has taken substantial time.
“This is not like new construction where you follow set plans,” he explains. “As you peel back layers of an old building, your plans change constantly. You know, you’d think the building’s columns would all be in the same place. But no,” he says. While scans depicted alignment, they were slightly off.
Quick decisions about such unforeseen issues require a flexible team, he says. Larger architecture firms “may have a hard time adapting,” to speedy plan alterations.
“You need to understand, going in, [that] you’ll know only 80 per cent of the building, and you’re lucky if you know that much.”
Mr. Olshevsky’s experience and passion for saving buildings spurred the city to give Peoplefirst a second grant, which will be used to convert a heritage building purchased in February in a foreclosure sale.
With the “very appealing” price and robust incentives, the developer can make it work, he says.
“Everything really comes down to dollars and cents.”
Conversion incentive options
As Canada’s office vacancy tips toward 19 per cent, developers say making the office-to-residential conversion process easier should be at the top of government agendas. Canadian Urban Institute’s new study, The Case for Conversions, recommends the following ways governments can support conversions:
- Capital grants
- Tax exemption
- Heritage funding
- Fee waivers (e.g., building permit)
- No or low-interest loans
- Pre-development funding
- Social impact bonds
- Energy efficiency funding
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