Calgary transforms old offices to apartments; experts say other cities should follow

CALGARY - No city would happily accept a downtown office vacancy rate of almost 30%. However, when faced with this situation, one Canadian city formulated a solution that is now viewed as a blueprint for the rest of Canada in its ongoing national housing crisis. Calgary has been actively converting underutilized office buildings into residential apartments, all thanks to its unique developer incentive program. The program has approved 13 office-to-residential conversion projects in two years, with four more awaiting approval. The inaugural conversion project, a $38 million transformation of a 10-storey unused office space into 112 residential apartments, is near completion and anticipated to launch in the early part of this year. Multiple projects are also currently in progress. Advocates state that the early accomplishments of the program prove that office-to-residential conversions can be successful and play a vital role in addressing the huge housing shortage in the country. Walsh Mannas, a key person with commercial real estate firm Avison Young, vouched for the effectiveness of the program stating that it could work in any major city. Calgary's Downtown Development Incentive Program, which provides $75 per square foot to property owners willing to convert underutilized offices into residential units, is unprecedented in North America and was initiated in 2021. This was a time of falling oil prices and the Covid-19 pandemic, during which Calgary, the city with the most corporate headquarters per capita in Canada, saw a collapse in commercial property values in its downtown area, due to massive layoffs in the energy sector, leaving approximately one-third of its downtown office space vacant. Calgary launched the incentive program in a bid to reduce the 13.5 million square feet of vacant space and spruce up its tax base. The program aims to cut back six million square feet of vacant downtown office space within the city by 2031. Although the reaction to the program was uncertain when it was launched, it quickly gained popularity, surpassing its funding threshold of $253 million by October 2023, according to Sheryl McMullen, the city's program manager. Greg Kwong, the Alberta managing director for commercial real estate firm CBRE, observes that while office-to-residential conversions cannot singlehandedly solve the current housing crisis, they offer a potential partial solution. He highlighted the struggle of many cities to fill up downtown office space following the pandemic and the rise of remote working. As numerous cities are grappling with similar issues, Kwong sees Calgary’s initiative as a model that can help other cities rejuvenate their downtown regions. Ken Toews, senior vice president of development with Calgary-based Strategic Group, has previously completed three office-to-residential projects in Alberta without an incentive program. He noted the financial challenges associated with executing these conversions, but emphasized their appeal in terms of regeneration and efficiency. Toews highlighted the shorter development time and lower carbon footprint of conversions - in comparison to new builds - and their ability to revitalize downtown areas. He noted that as the process becomes more streamlined and popular, a broader array of buildings will become potential candidates for conversion. Toews added that he has already been approached by other Canadian developers interested in learning from Calgary’s approach. He affirmed, “We know this contributes to the housing crisis solution and can probably succeed in any city if the city is willing to offer an incentive” highlighting the need for concerted effort and creativity in addressing the housing challenge in the country.