Transformative Year for Repurposing Office Spaces into Residential Units: A Look at the Numbers
2024 is shaping up to be a critical year for the commercial real estate market, as developers increasingly consider the conversion of vacant and underutilized office spaces into residential units. This emerging trend is bolstered by hard numbers—rising vacancy rates in office spaces and a pressing national housing shortage.
The Landscape: By the Numbers
Data suggest that the situation is ripe for innovation. The national office vacancy rate was at 13.3% in the first quarter of 2023, up slightly from the previous quarter. This is a substantial jump from the pre-pandemic levels in early 2020 when the rate stood at approximately 8%. The increase in vacancies has made it more appealing for markets to begin conversions. Some markets have already started to transform certain office towers into residential spaces, a move that could ripple through the construction pipeline, putting some new office projects on hold or leading to outright cancellations.
Specific locales exhibit even starker realities. For instance, the office market in Calgary reports an alarming vacancy rate of around 28%, severely impacted by the collapse in oil prices in recent years.
Criteria for Conversion: A Significant Pool of Candidates
According to data from commercial real estate firm Avison Young, as much as 30% of office towers across Canada, totaling over 3,000 properties, are potential candidates for conversion into residential housing. This figure underlines the massive scope and potential impact of such a shift.
Older buildings usually make better candidates for conversion. They often possess the architectural flexibility required for residential repurposing and may have sufficient equity to cover the cost of renovations.
Real-world Applications: A Success Story
The trend in converting office space to residential is supporting the City of Calgary’s overall goal to revitalize the downtown — filling up some empty commercial real estate and adding a growing population base to the core. Earlier this year, the city announced its first three successful applicants to the Downtown Calgary Development Incentive Program, saying the projects will infuse life into largely empty or underutilized office buildings by converting vacant office space into new residential units. It’s one way the city is moving beyond the traditional nine-to-five business district and toward a vibrant city centre people enjoy 24/7, with a balanced mix of residential, office, retail, entertainment, tourism and culture.
The first three approved projects of the Downtown Calgary Development Incentive Program include:
Palliser One (125 9 Ave. S.E.) – Aspen Properties
Teck Place (205 9 Ave. S.E.) – Cidex Group of Companies
The Cornerstone (909 5 Ave. S.W.) – Peoplefirst Developments.
The three projects, which will receive approximately $31 million from the $100-million city fund, will remove about 414,000 square feet of office space and create around 401 new downtown homes.
Economic and Social Repercussions
Conversions like these are a win-win for communities. Not only do they provide relief for a growing national housing crisis, but they also revitalize downtown areas that have languished due to high office vacancy rates.
Conclusion
As 2023 comes to a close, the real estate market appears to be at a turning point. The rise in office vacancies and the increasing housing demand are pushing developers and other stakeholders to think outside the box. Considering the statistics and successful examples like the ones currently under way in Calgary, it is increasingly evident that converting office spaces into multi-residential units could be a viable and mutually beneficial solution for many of Canada's urban challenges.
