Office-building conversions offer ray of hope in downtown Calgary

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Renovating old, vacant office buildings to give them new purpose is one way to inject life back into Calgary’s struggling downtown. But it’s no simple task. Just ask Asheet Ruparell about his push to turn a 40-year-old office building into a boutique hotel.

Several years ago, the Calgary businessman started looking at old office towers with the idea of transforming one into a small, distinct downtown hotel – modelled on trendy versions in London, Toronto and American cities. Not every building is ripe for conversion because the variations in size and shape of office floors have to work for hotel layouts.

Mr. Ruparell’s search brought him to the five-storey building at 630 4 Ave S.W., the vacated former headquarters of natural gas producer Birchcliff Energy Ltd. The old-style glass-façade building had good bones, modernized elevators and a prime location in the downtown core. His family bought it in 2018 for $9-million.

In the multimillion-dollar makeover, the building had to be stripped down to the concrete. All electrical and mechanical systems had to be replaced. A plan to open last year was delayed by the pandemic. Fingers crossed, the 104-room Westley Hotel will now open in June.

“We know there will be a market in a couple of years,” Mr. Ruparell said. “It will be a tougher go than if COVID hadn’t happened. But we’ll see the other side of it.”

Converting office towers into something new – whether it be to hotel rooms, condos or affordable housing – will help Calgary deal with a massive glut of empty office space. But they can be daunting projects. Beyond finding a building that will physically work, it’s tricky to make a financial case in a down economy. In the end, it’s likely conversions will be a small, but still significant, part of revitalizing a downtown that once grew and flourished on the premise of high-priced oil.

There’s no doubt about the need to do something. A lack of access to key refining markets, the oil-price drop and a swing away from oil sands investment have weakened the province’s economy, and emptied floors and sometimes whole buildings in downtown Calgary. Thousands of workers have been laid off as the industry continues to contract and consolidate. And the pandemic has upended any past expectations regarding how many people will work out of their homes, instead of in the office.

Despite no major new towers opening in the past two years, Calgary’s downtown office vacancy rate sits at 30 per cent, and the market is crowded with lessees trying to sublet their space. There are concerns the office vacancy numbers could get worse before they get better.

“If you look at vacancy, it can be very, very daunting,” said Mary Moran, chief executive of Calgary Economic Development, a not-for-profit corporation focused on attracting new companies and industries to the city.

“We built office towers based on a $100 oil strategy, and primarily for white-collar workers. And the reality is, the energy industry is not going to be our mega-job creator.”

A University of Calgary paper this month on “adaptive reuse,” focused on office-to-residential conversion, said the undertaking can be highly complicated and expensive, but can offer big benefits. The paper from the School of Public Policy said adaptive reuse can be better than keeping a building vacant, or mostly vacant, with the hope that economic conditions improve. It can be less expensive and time-consuming than demolition and development. And, more broadly, conversions help to revitalize neighbourhoods and provide affordable housing while limiting sprawl and environmental waste.

Municipal governments should consider creating an inventory of buildings best suited for conversion to residential, the report said. It also contemplates government interventions, including sustainability and climate initiatives under the Canada Infrastructure Bank. “The city can provide incentives for conversions, such as tax holidays, while making improvements to the ease and speed of assessments, approvals and permits, lowering the risk and cost for proposed conversion projects,” the report said.

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Ms. Moran said they are part of the city’s strategy to put a wide range of ideas on the table: From student housing, vertical farming, or micro Amazon distribution centres – where drones take off for delivery.

Greg Kwong, the Alberta managing director for commercial realtor CBRE, said on a purely private-sector basis, the economics simply don’t make sense for most conversion projects right now.

“If we could repurpose 25 buildings, we might be out of the woods a little bit. But you just can’t do that.”

Likewise, developer Ajay Nehru said conversions are far from being a financial home run. As the owner of the mixed-use Westview Heights building at 825 8 Ave. S.W., he felt deep ambivalence about whether to convert the building’s four floors of empty office space to residential apartments. Even the residential rental market has weakened, he noted.

But ultimately, Mr. Nehru said he decided to proceed with the project that began construction this week, because the building already has 300 rental suites. And it’s better than having the eight, ninth, 10th and penthouse levels of the 40-storey building sit empty.

“I already have the building staffed. I have the management. Those are the benefits to me. But if I didn’t have those benefits, the economics would be extremely marginal,” he said.

“Some of the numbers I’ve seen on conversions, I’ve said, ‘that’s higher than doing a new build.’ ”

As for Mr. Ruparell, he has already benefited from a city initiative, now renamed the Downtown and Main Streets Exemption Areas, which exempts some businesses or building projects from having to get a development permit. And he’s hoping warmer months will bring a release from the pandemic – and with that, an uptick in travel when the hotel opens.

There will be economic growth in future years, he predicts, though it won’t be anything like the booms the downtown has witnessed in the past. With the downtown changing, the city’s identity and idea of itself will shift, too.

“In the long term, Calgary needs to make some changes. Calgary needs to find opportunities for growth outside the oil industry.”

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