Office vacancies remain elevated across the country after the pandemic-fuelled shift to remote work. Meanwhile, the rental market has a severe shortage of units, partly as Canada’s population booms. THE CANADIAN PRESS/Jeff McIntosh
This year could be pivotal for Canada’s office market as developers increasingly eye empty and underused office buildings to help solve the country’s worsening housing shortage, according to Colliers Canada. And one recent conversion in downtown Calgary could serve as a successful playbook.
“2023 could mark a shift in how excess office towers are to be treated,” real estate consulting firm Colliers said in a report.
“Several markets have either announced or have already begun converting certain office towers into residential spaces. This may have a ripple effect on the office construction pipeline if projects are put on pause or even cancelled outright.”
The report, which was released on Mar. 30, said the national office vacancy rate was 13.3 per cent in the first quarter this year, a slight increase from the prior three-month period. It’s also significantly higher than the pre-pandemic first quarter of 2020, when the national office vacancy rate was roughly eight per cent.
Calgary’s conversion ‘experiment’
The challenges and ultimate success of an office-to-housing conversion are on full display in Calgary.
Meet Neoma, an 82-unit affordable housing building that was renovated from an office building in the city’s downtown. It’s owned and operated by affordable housing provider HomeSpace and was renovated by PCL Construction.
HomeSpace operates Neoma, an affordable housing building that was converted from an office tower.
HomeSpace bought the building for $4.7 million in 2020 from Artis REIT (AX-UN.TO) and the fast-tracked 12-month renovation of the building costs $30 million. It officially opened in September last year.
“Converting office towers into housing is no easy task,” said Emily Campbell, communications advisor at HomeSpace.
“I would say it was a long, kind of, experimental process to gut the building.”
Canada is staring down a worsening housing crisis while, at the same time, many office towers sit underused thanks to the prevalence of remote work, so it might seem fitting to convert some of these office buildings to help fill the housing need.
Data from commercial real estate firm Avison Young have found that as much as 30 per cent of office towers across Canada, or more than 3,000 properties, are candidates to be converted into housing.
There are roughly three to five different elements that need to align in order for a building to be the perfect prospect for a conversion, Scott Pickles, principal and Canada consulting leader at Avison Young, tells Yahoo Finance Canada. He is also a registered architect.
Whether housing fits with the building owner’s business strategy, financing, location and the work needed to overhaul the building all need to be considered, Pickles says.
The shape of the building and the floor plates, or the structure and layout of an individual floor, also determine if the space can be divided into liveable and desirable apartment units.
Converting electrical and plumbing systems for residential needs can be stymied by whether the elevators are in the right spot, he says.
Older buildings, particularly those built pre-1990, often are better candidates than newer ones, Pickles says, not just because they’re more likely due for upgrades and renovations, but because they tend to have more equity built up and therefore the ability to fund renovations through new debt.
In the case of the Calgary conversion, HomeSpace’s Campbell says the organization looked at “so many” buildings before landing on this one that fits the bill for a residential conversion. Even then, dividing up the floor plan was a “struggle.”
The building sat empty for two years before HomeSpace purchased it.
A look at the building during renovations.
One of the biggest risks going into the renovation, according to Rob Mitschke, the PCL Construction project manager tasked with the massive overhaul, was understanding where to start.
Everything, from the foundation to the roof, including the original materials used in the construction, structural integrity, building codes, plumbing, electrical, stairwells, elevators (the list goes on), needed to be assessed, he told Yahoo Finance Canada.
Multiple phases of the renovation were happening at once because of the tight schedule.
“You’re not dealing with an empty field where you dig a hole and build whatever you want. You have to understand your starting point,” he said.
Because of the tight schedule, different phases of the renovation were happening all at once.
“We didn’t have the luxury of completing our demolition, clearing the building out and then starting construction,” Mitschke said.
“So we were simultaneously removing the outside of the building, reinstalling the outside of the building at the same time, floor by floor, gutting the inside of the building, demolition top down and then also starting construction all simultaneously which, given other circumstances, you may give a little space between those items,” he added, jokingly.
The project was funded by the federal and Alberta governments and the City of Calgary, among other public and private donors.
The 10-storey building features a family emergency centre, transitional housing and affordable one, two and three-bedroom units, which are geared towards families.
The building features one, two and three bedroom units
Monthly rent is 30 per cent below market rates and proportional to residents’ income.
The newest real estate trend?
Mitschke says he has since been approached by “multiple other developers” and is “engaging on a number of [office] buildings” to determine the viability of converting them into housing.
The Calgary office market has a staggering vacancy rate of roughly 28 per cent, according to Colliers data. This is the result of multiple oil price collapses in recent years that ravaged energy companies.
Meanwhile, HomeSpace’s Campbell says residents of the Neoma building are grateful to have a safe and stable place that addresses the root causes of what led some to housing insecurity in the first place.
The mural, one of Calgary’s biggest, on the side of the building
An added bonus is it brings vibrancy back to downtown Calgary, she says.
“Downtown was starting to feel a little bit dangerous because there’s nobody around. As soon as people clear out of work at six o’clock, Calgary downtown was pretty dead. So, to bring people in creates a sense of safety and security and just brings life back to downtown, which has been struggling,” Campbell said.
Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
Dollarama Inc.’s food aisles may have expanded far beyond sweet treats or piles of gum by the checkout counter in recent years, but its chief executive maintains his company is “not in the grocery business,” even if it’s keeping an eye on the sector.
“It’s just one small part of our store,” Neil Rossy told analysts on a Wednesday call, where he was questioned about the company’s food merchandise and rivals playing in the same space.
“We will keep an eye on all retailers — like all retailers keep an eye on us — to make sure that we’re competitive and we understand what’s out there.”
Over the last decade and as consumers have more recently sought deals, Dollarama’s food merchandise has expanded to include bread and pantry staples like cereal, rice and pasta sold at prices on par or below supermarkets.
However, the competition in the discount segment of the market Dollarama operates in intensified recently when the country’s biggest grocery chain began piloting a new ultra-discount store.
The No Name stores being tested by Loblaw Cos. Ltd. in Windsor, St. Catharines and Brockville, Ont., are billed as 20 per cent cheaper than discount retail competitors including No Frills. The grocery giant is able to offer such cost savings by relying on a smaller store footprint, fewer chilled products and a hearty range of No Name merchandise.
Though Rossy brushed off notions that his company is a supermarket challenger, grocers aren’t off his radar.
“All retailers in Canada are realistic about the fact that everyone is everyone’s competition on any given item or category,” he said.
Rossy declined to reveal how much of the chain’s sales would overlap with Loblaw or the food category, arguing the vast variety of items Dollarama sells is its strength rather than its grocery products alone.
“What makes Dollarama Dollarama is a very wide assortment of different departments that somewhat represent the old five-and-dime local convenience store,” he said.
The breadth of Dollarama’s offerings helped carry the company to a second-quarter profit of $285.9 million, up from $245.8 million in the same quarter last year as its sales rose 7.4 per cent.
The retailer said Wednesday the profit amounted to $1.02 per diluted share for the 13-week period ended July 28, up from 86 cents per diluted share a year earlier.
The period the quarter covers includes the start of summer, when Rossy said the weather was “terrible.”
“The weather got slightly better towards the end of the summer and our sales certainly increased, but not enough to make up for the season’s horrible start,” he said.
Sales totalled $1.56 billion for the quarter, up from $1.46 billion in the same quarter last year.
Comparable store sales, a key metric for retailers, increased 4.7 per cent, while the average transaction was down2.2 per cent and traffic was up seven per cent, RBC analyst Irene Nattel pointed out.
She told investors in a note that the numbers reflect “solid demand as cautious consumers focus on core consumables and everyday essentials.”
Analysts have attributed such behaviour to interest rates that have been slow to drop and high prices of key consumer goods, which are weighing on household budgets.
To cope, many Canadians have spent more time seeking deals, trading down to more affordable brands and forgoing small luxuries they would treat themselves to in better economic times.
“When people feel squeezed, they tend to shy away from discretionary, focus on the basics,” Rossy said. “When people are feeling good about their wallet, they tend to be more lax about the basics and more willing to spend on discretionary.”
The current economic situation has drawn in not just the average Canadian looking to save a buck or two, but also wealthier consumers.
“When the entire economy is feeling slightly squeezed, we get more consumers who might not have to or want to shop at a Dollarama generally or who enjoy shopping at a Dollarama but have the luxury of not having to worry about the price in some other store that they happen to be standing in that has those goods,” Rossy said.
“Well, when times are tougher, they’ll consider the extra five minutes to go to the store next door.”
This report by The Canadian Press was first published Sept. 11, 2024.
TORONTO – The U.S. Consumer Financial Protection Bureau has ordered TD Bank Group to pay US$28 million for repeatedly sharing inaccurate, negative information about its customers to consumer reporting companies.
The agency says TD has to pay US$7.76 million in total to tens of thousands of victims of its illegal actions, along with a US$20 million civil penalty.
It says TD shared information that contained systemic errors about credit card and bank deposit accounts to consumer reporting companies, which can include credit reports as well as screening reports for tenants and employees and other background checks.
CFPB director Rohit Chopra says in a statement that TD threatened the consumer reports of customers with fraudulent information then “barely lifted a finger to fix it,” and that regulators will need to “focus major attention” on TD Bank to change its course.
TD says in a statement it self-identified these issues and proactively worked to improve its practices, and that it is committed to delivering on its responsibilities to its customers.
The bank also faces scrutiny in the U.S. over its anti-money laundering program where it expects to pay more than US$3 billion in monetary penalties to resolve.
This report by The Canadian Press was first published Sept. 11, 2024.
