Calgary is leading the office-to-residential conversion charge in North America through public policies and financial tools aimed at addressing commercial vacancy, housing affordability and climate change issues.

Toronto and other cities are looking at what can be learned from Calgary, which had major office vacancy issues even before the COVID-19 pandemic due to a slowdown in the oil and gas industries. The pandemic exacerbated those issues, forcing the city to act in an effort to help rejuvenate the core.

Urban Land Institute Toronto presented a recent webinar featuring Sheryl McMullen, the City of Calgary’s manager of investment, marketing and downtown strategy, who explained what’s been done in her city.

Toronto Coun. Brad Bradford, a former urban planner who’s now chair of the City of Toronto planning and housing committee, opened the session by talking about what’s being done and what can still be done with office conversions in Canada’s largest metropolis. 

Gensler principal of building transformation and adaptive re-use Steven Paynter presented an overview of the North American office-to-residential conversion landscape.

He then joined McMullen in a panel discussion, moderated by Tricon Residential vice-president of investments Tobias Oriwol, that also featured InterRent REIT VP of acquisitions and asset management Asad Hanif, and H&R REIT director of development and construction Helia Daryabeigy.

City of Toronto

“Politicians and politics have put us in a position where too often we were creating barriers and obstructions to more housing and making it difficult for us to deliver,” Bradford said. 

Office occupancy in Toronto’s downtown core is half of pre-pandemic levels, but Bradford said municipal policies don’t reflect that new reality. Barriers to additional housing must be removed by providing relief from guidelines and rules that make it difficult to convert offices into housing. 

B- and C-class office buildings with large and growing vacancy rates aren’t going to make a comeback, according to Bradford, and are cutting into municipal tax revenues.
 
The amount of office space in Toronto needs to be re-evaluated, as Bradford pointed out there are proposals for new office buildings that aren’t moving forward due to a lack of demand.

“I'm not convinced that if we provide some relief for office replacement policies that all of a sudden we're going to be experiencing an acute office shortage crisis, but I would suggest we will still have a housing crisis,” Bradford said. 

He also calls for the federal government to “follow through on a previous commitment to create a federal program to provide financial assistance to the builders looking to undertake these kinds of projects in Canada.”

Gensler

Gensler is a global architecture, design and planning firm. Toronto-based Paynter engages in research on unlocking the value of B- and C-class buildings by converting them to residential, shaping the future of cities and the design of post-pandemic office buildings.

Gensler has looked at more than 1,100 office buildings across North America and thinks conversions to residential uses are feasible in 25 to 30 per cent of them. 

If half of the current office vacancies in Canada were converted to residential it would add about 75,000 housing units, according to Paynter. Downtown Toronto alone could account for 25,000 to 30,000 new units, he added.

Gensler partnered with City of Calgary officials and found approximately three million square feet of office space viable for conversion to residential. Municipal representatives wanted to eliminate half of the city's vacant office space – about six million square feet.

“The only way to bridge that gap between what is financially viable for developers to do now and what you want them to do in terms of housing creation or vacancy removal is to put in an incentive program,” Paynter said. 

Conversions are slowly starting to occur in Toronto.

Paynter cited 1 St. Clair West — a 57-year-old, 12-storey midtown office building owned by Slate Asset Management — which it’s looking to incorporate into a new 49-storey structure with 340 residential units, plus revitalized retail and office components.

Building conversions are also more environmentally friendly than new developments. About 4.6 million kilograms of carbon are being saved at 1 St. Clair West by not tearing down the existing building and constructing a new one, according to Paynter.

City of Calgary

“When you have a vacant building, it's worth much less than a fully occupied one,” McMullen observed, “and our assessment base dropped by $16 billion from 2015 to 2020."

Tax rebates were offered by the municipality for five years before it decided to start investing in itself by working with real estate owners to convert empty office buildings to residential uses.

Calgary has 13 approved conversion projects and four more are on the way due to a $75 per square foot incentive program payable to building owners upon presentation of an occupancy certificate.

McMullen said being one of the last sources of capital for a project with the incentive payment mitigates the financial risk to the city.

Those projects will create about 2,300 housing units and represent 2.3 million square feet of the six-million-square-foot office vacancy reduction goal.

When the program was launched in 2021, it was estimated the incentive payment would cover 30 per cent of conversion costs. As different costs have risen, the incentive now covers about 20 to 25 per cent.

The city initially allocated $45 million to the program and that was increased to $100 million due to soaring interest. A team dedicated to dealing with office conversion applications is in place to streamline the process.

A policy allowing building owners to change use without a development permit saves about six months and $500,000. Projects which passed a vetting process were granted building permits within a month.

McMullen said Calgary’s first conversion, an approximately 80,000-square-foot building, kicked off in October 2022 and is to open in February.

H&R REIT

H&R is seeking to convert a 110-year-old Ontario Heritage Act-protected 15-storey office building at 69 Yonge St., in downtown Toronto to mixed-use.

Daryabeigy said the existing 6,000-square-foot floor plates in the L-shaped building could be expanded by about 1,000 square feet by infilling the corners.

“Having that floor plate size minimized a lot of the issues that you see come up in these types of conversions when it comes to floor plan efficiencies, getting light into the units and things like that,” Daryabeigy explained.

In addition to infilling the corners, H&R is proposing to add five more floors so the development can accommodate 127 residential units, retail at ground level and a small commercial component in the sub-basement.

It’s hoping to have approvals in place to move forward by early 2024.

InterRent REIT

InterRent has purchased office buildings for the purpose of converting them to residential.

Its first project was The Slayte at 473 Albert St. in Ottawa. With CLV Group as its development and project manager, InterRent converted it from an 11-storey government office building to a 158-unit rental apartment. 

InterRent and CLV’s are partners on the firm's next Ottawa conversion project, which will transform a vacant 55-year-old, 11-storey, 107,000-square-foot office building at 360 Laurier Ave. W. into a 139-unit rental apartment.

Preserving the building’s exterior is expected to save more than 15 million kilograms of concrete and generate 28 per cent fewer greenhouse gas emissions than starting a similar-sized project from scratch, CLV president Oz Drewniak had said in a previously published report.

When considering office conversion candidates, Hanif said InterRent looks at: the building’s location; floor plates; the ability to keep existing infrastructure, including elevator cores and other building systems; and whether there are any deferred capital expenditures on significant components of the building it would retain, including the facade, superstructure and parking garage.

It also tries to work with municipalities to fast-track approvals, remove certain requirements and reduce application fees for conversion projects.

Hanif said InterRent will consider office conversions in other markets, particularly the Greater Toronto Area.