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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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Housing starts up in six largest cities but construction still not closing supply gap

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The Canada Mortgage and Housing Corp. says construction of new homes in Canada’s six largest cities rose four per cent year-over-year during the first half of 2024, but housing starts were still not enough to meet growing demand.

The agency says growth in housing starts was driven by significant gains in Calgary, Edmonton and Montreal.

A total of 68,639 units began construction, the second strongest figure since 1990, however the rate of housing starts per capita meant activity was around the historical average and not enough “to reduce the existing supply gap and improve affordability for Canadians.”

The report says new home construction trends varied significantly across the markets studied, as Toronto, Vancouver and Ottawa saw declines ranging from 10 to 20 per cent from the same period last year.

Apartment starts in the six regions increased slightly, driven by construction of new units for rent, as nearly half of the apartments started in the first half of 2024 were purpose-built rentals.

But condominium apartment starts fell in the first six months of the year in most cities, a trend which the agency predicts will continue amid soft demand as developers struggle to reach minimum pre-construction sales required.

This report by The Canadian Press was first published Sept. 26, 2024.

The Canadian Press. All rights reserved.

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Mortgage rule changes will help spark demand, but supply is ‘core’ issue: economist

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TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.

The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.

The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.

CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.

However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.

Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.

This report by The Canadian Press was first published Sept. 17,2024.

The Canadian Press. All rights reserved.

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National housing market in ‘holding pattern’ as buyers patient for lower rates: CREA

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OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.

The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.

On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.

CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”

The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.

The number of newly listed properties was up 1.1 per cent month-over-month.

This report by The Canadian Press was first published Sept. 16, 2024.

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