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Conversions won't solve Calgary's office vacancy issue: Experts – Real Estate News EXchange

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The Cube, an office-to-residential conversion in Calgary by Strategic Group. Despite much talk about office conversions, only five have actually been completed as the city’s office market continues to struggle. (Courtesy Strategic Group)

With Calgary’s downtown office vacancy rate stuck in the 25 per cent range, many real estate experts have suggested converting empty space in the Central Business District into residential use as one solution for the market.

But landlords and property owners haven’t been stampeding to actually follow through on that strategy. RENX has learned only five buildings during the past two years have been converted from office to rental in inner-city neighbourhoods such as Southwood, Beltline, South Calgary, Eau Claire and Tuxedo Park.

And, there are no further conversions planned, at least for the short term.

“We don’t have any in the queue right now, nothing in the queue at this moment,”  said Sonya Sharp, the City of Calgary’s team lead, business and local economy, in an interview with RENX.  “These (five buildings) are the ones that have been completed.”

According to commercial real estate firm CBRE, the downtown Calgary office market has an inventory of 42.3 million square feet across a total of 148 buildings.

That means about 10 million square feet of vacant space. So why haven’t there been more conversions?

Challenges repurposing office to residential

At the recent Calgary Real Estate Forum, a session highlighted the challenges landlords face in repurposing those offices to residential uses – Giving Older Assets A New Life: A Look at Repurposing Existing Properties & Sites.

Six buildings in the downtown core are more than 75 per cent vacant, while three buildings are empty said Greg Kwong, CBRE‘s executive vice-president and regional managing director in Alberta.

“People from the city and other people want to say ‘what are the solutions to getting our vacancy down, let’s repurpose half of downtown Calgary.’ It’s really just not possible given the current vacancy right now,” said Kwong.

In the suburban office market, 11 buildings are greater than 75 per cent vacant and nine buildings are 100 per cent vacant. There are 366 buildings in the suburban Calgary office market with a total of 25.8 million square feet.

“Even if we took (the completely vacant buildings) and converted them to condos – took them out of the office market – we still would have a very high vacancy rate,” Kwong added.

Also during the forum, Marco Civitarese, Calgary’s chief building official and manager, said the age and classification of a building is important in how it could be repurposed.

City tries to remove red tape

On June 13, 2017 Calgary council approved an initiative called the Centre City Enterprise Area. The directive made a number of amendments to a land use bylaw, removing significant barriers to save businesses thousands of dollars if they choose to open or relocate into the Central Business District.

The initiative was developed in collaboration with Calgary Economic Development, city administration, BILD Calgary, NAIOP, local business improvement areas, community associations and small businesses.

“The strategy behind it is really to increase vibrancy in the downtown. Gain some activation to residential living and repurposing buildings that are facing the crunch of vacancies right now,” said Civitarese.

During the real estate forum, Brian Rowland, associate with Zeidler Architecture, said architects can face design challenges in these conversion projects. These include existing layouts, windows that don’t open, and how exteriors are designed to suit the original purpose of the building.

“Usually they don’t include a bunch of vents. So they’re not anticipating 12 or 14 kitchens, and bathrooms, and washer/dryers on every floor,” he said.

Then there are surprises that are not anticipated in the architectural drawings.

“You start cutting into these buildings and finding these surprises you have to deal with as you go through. So it does create a new challenge,” Rowland explained. “The idea is just that we can take something that’s existing and repurpose it and really make it into something that’s contributing again to someone’s portfolio of holdings.”

Strategic Group’s office conversions

Ken Toews, senior vice president of development for Calgary’s Strategic Group, which has been busy converting office space to residential use in both Calgary and Edmonton, said it has been involved in six conversions. 

He said while conversions are important to add residential space in downtown Calgary, for property owners they can take a non-performing or low-performing asset and convert it to a much more attractive asset.

“Why can’t we do more of these? Well, there’s a whole bunch of challenges that come when you’re repurposing a building. The first challenge is that the residential floor plate is almost always different than what you have for an office floor plate. So you have to really work with it to make it work,” said Toews. “And most buildings, it won’t.”

Even with the success of its conversions however, several weeks after the forum Strategic Group announced it was putting 56 of its Alberta properties under creditor protection.

The assets are primarily office buildings in Calgary. The challenging real estate market and continued uncertainty in the economy were cited as the reasons for the move.

New flexibility for vacant offices

Under Calgary’s Centre City Enterprise Area plan, businesses no longer require a development permit for changes of use, exterior alterations and small additions in the Beltline or Downtown for a three-year period (ending July 1, 2020).

Sharp said the Centre City Enterprise Area is a mapped out area of the downtown and into a small area of the Beltline to reduce retail and office vacancies in the core.

The city also wanted to make it easier to allow pop-up and interim uses in vacant office spaces.

“Pop-up uses are uses in approved buildings and no approvals are required. So a retail store can go in and out as long as they aren’t breaking any code rules,” said Sharp. “An interim use is up to six months and we’ve waived the development permit, and we’ve waived the business licence, and they would only be required to get a building permit if the building had been vacant more than six months or they’re doing any changes inside the building that will be required to get a building permit.

“We focused on the city wide for that because we have vacancies all over the city. We wanted to animate city spaces citywide. We wanted to provide opportunities for businesses to try out their product without having to go through all the city permits. It was an opportunity to reduce barriers and costs of starting a business in Calgary.”

RELATED ARTICLES:

* e11even: Strategic Group’s first office-to-residential conversion

* Strategic Group turns vacant Calgary office into Cube apartments

* Calgary’s The International a unique conversion for Minto 

* Converting existing buildings: Part One

* Converting existing buildings: Part Two

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Real eState

What Is the Canada Mortgage and Housing Corporation (CMHC)

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The Canada Mortgage and Housing Corporation (CMHC) is a Canadian Crown Corporation that serves as the national housing agency of Canada and provides mortgage loans to prospective buyers, particularly those in need.

Understanding the Canada Mortgage and Housing Corporation (CMHC)

The Canada Mortgage and Housing Corporation (CMHC) serves as the national housing agency of Canada. CMHC is a state-owned enterprise, or a Crown corporation, that provides a range of services for home buyers, the government, and the housing industry.

CMHC’s stated mission is to “promote housing affordability and choice; to facilitate access to, and competition and efficiency in the provision of, housing finance; to protect the availability of adequate funding for housing, and generally to contribute to the well-being of the housing sector.”1

A primary focus of CMHC is to provide federal funding for Canadian housing programs, particularly to buyers with demonstrated needs. CMHC, headquartered in Ottawa, provides many additional services to renters and home buyers, including mortgage insurance and financial assistance programs. CMHC acts as an information hub for consumers, providing information on renting, financial planning, home buying, and mortgage management.

CMHC also provides mortgage loan insurance for public and private housing organizations and facilitates affordable, accessible, and adaptable housing in Canada.2 Additionally, CMHC provides financial assistance and housing programs to First Nations and Indigenous communities in Canada.3

Professionals and Consumers

CMHC provides services to both professionals and consumers. For professionals, CMHC aims to work in collaboration with different groups to provide affordable housing. Services include project funding and mortgage financing, providing information to understand Canada’s housing market, innovation and leadership networks to access funding and talent to spur housing innovation and increase supply, and providing speakers and hosting events for the industry.4

For consumers, CMHC seeks to provide all the tools an individual would need to either buy a home or rent a home and a variety of information and assistance for current homeowners, such as managing a mortgage, services for seniors to age in place, and financial hardship assistance.56

For financial hardship and mortgage assistance, CMHC provides tools that include payment deferrals, extending the repayment period, adding missed payments to the mortgage balance, moving from a variable-rate to a fixed-rate mortgage, and other special payment arrangements.7

Canada Mortgage and Housing Corporation (CMHC) and the National Housing Strategy

In November 2017, the Canadian government announced the National Housing Strategy.8 Rooted in the idea that housing is a human right, this 10-year, $70 billion project will largely be administered by CMHC, although some services and deliverables will be provided by third-party contractors and other Canadian federal agencies.9

Strategic initiatives of the National Housing Strategy include:

  • Building new affordable housing and renewing existing affordable housing stock
  • Providing technical assistance, tools, and resources to build capacity in the community housing sector and funds to support local organizations
  • Supporting research, capacity-building, excellence, and innovation in housing research10

History of the Canada Mortgage and Housing Corporation (CMHC)

CMHC was established in 1946 as the Central Mortgage and Housing Corporation by the federal government in Canada with the primary mission of administering the National Housing Act and the Home Improvement Loans Guarantee Act and facilitating discounts to mortgage companies. Initially, CMHC began by providing housing to returning Canadian war veterans, and toward the end of the 1940s, CMHC began to administer a program providing low-income housing across Canada.11

In 1947, CMHC was responsible for opening Regent Park, a large low-income housing project, and Toronto’s first urban renewal project. By the 1960s, CMHC introduced co-op housing and multi-unit apartment buildings throughout Canada.11

In 1979, the Central Mortgage and Housing Corporation changed its name to the Canada Mortgage and Housing Corporation

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Canadian home price gains accelerate again in May

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Canadian home prices accelerated again in May from the previous month, posting the largest monthly rise in the history of the Teranet-National Bank Composite House Price Index, data showed on Thursday.

The index, which tracks repeat sales of single-family homes in 11 major Canadian markets, rose 2.8% on the month in May, led by strong month-over-month gains in the Ottawa-Gatineau capital region, in Halifax, Nova Scotia, and in Hamilton, Ontario.

“It was a third consecutive month in which all 11 markets of the composite index were up from the month before,” said Daren King, an economist at National Bank of Canada, in a note.

On an annual basis, the Teranet index was up 13.7% from a year earlier, the 10th consecutive acceleration and the strongest 12-month gain since July 2017.

Halifax led the year-over-year gains, up 29.9%, followed by Hamilton at 25.5% and Ottawa-Gatineau at 22.8%.

Housing price gains in smaller cities outside Toronto and its immediate suburbs again outpaced the major urban centers, with Barrie, Ontario leading the pack, up 31.4%.

On a month-over-month basis, prices rose 4.9% in Ottawa-Gatineau, 4.3% in Halifax and 3.7% in Hamilton.

The Teranet index measures price gains based on the change between the two most recent sales of properties that have been sold at least twice.

Canada‘s average home selling price, meanwhile, fell 1.1% in May from April, Canadian Real Estate Association data showed on Tuesday, but jumped 38.4% from May 2020.

 

(Reporting by Julie Gordon in Ottawa; Editing by Christopher Cushing)

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Economy

Bank of Canada seeing signs of cooling in hot housing market

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The Bank of Canada is starting to see signs that the country’s red hot housing market is cooling down, although a return to a normality will take time, Governor Tiff Macklem said on Wednesday.

The sector surged in late 2020 and early 2021, with home prices escalating sharply amid investor activity and fear of missing out. The national average selling price fell 1.1% in May from April but was still up 38.4% from May 2020.

“You are starting to see some early signs of some slowing in the housing market. We are expecting supply to improve and demand to slow down, so we are expecting the housing market to come into better balance,” Macklem said.

“But we do think it is going to take some time and it is something that we are watching closely,” he told the Canadian Senate’s banking committee.

Macklem reiterated that the central bank saw evidence people were buying houses with a view to selling them for a profit and said recent price jumps were not sustainable.

“Interest rates are unusually low, which means eventually there’s more scope for them to go up,” he said.

Last year, the central bank slashed its key interest rate to a record-low 0.25% and Macklem reiterated it would stay there at least until economic slack had been fully absorbed, which should be some time in the second half of 2022.

“The economic recovery is making good progress … (but) a complete recovery will still take some time. The third wave of the virus has been a setback,” he said.

The bank has seen some choppiness in growth in the second quarter of 2021 following a sharp economic recovery from the COVID-19 pandemic at the start of the year, he added.

(Reporting by David Ljunggren and Julie Gordon; Editing by Peter Cooney and Richard Pullin)

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