It’s a beautiful idea – transforming underused, often ugly and old office buildings into sleek, desirable places where people actually want to live.
Office-to-residential conversions are a key plank in Calgary’s strategy to sop up some of the excess office space in a downtown with a 30-per-cent office vacancy rate – one of the highest in Canada or south of the border. Conversions can be done more quickly than new builds, and are billed as a way to bring more people into the core beyond the 9-to-5 workday. Proponents say redoing instead of razing saves energy and materials, and will help halt the multiyear plunge in downtown real-estate property values.
A new city-funded incentive program for developers who want to turn office buildings into apartments or condos could yield project announcements before the year’s end. And public funding is likely needed to spur these types of developments. The costs and uncertainties of such complex projects mean there are, as of yet, few real-world examples.
Downtown Calgary retains a corporate feel. There are steely and concrete towers, 1970s-vintage office buildings, and an unending fondness for the warmth of Plus 15s. Rising oil and natural gas prices could some day bring a little bit of bustle back to the office towers, but the core is bereft of actual residents.
Yet there are also signs of new life: Striking murals, revitalized parks, independent coffee shops and smaller retailers are emerging in a now-more-affordable downtown.
“Calgary has for many, many years been known as just a commercial core,” said Sheryl McMullen, lead for the Downtown Calgary Development Incentive Program. “Everyone’s always been trying to get more residential in the downtown area.”
A city incentive program that, in its first phase, could disperse up to $45-million worth of municipal funds to projects in the months ahead is raising expectations for what’s possible. The goal is to convert office space to residential use (rentals or condos) in the city’s priority area – the core, where vacancy is at its highest. The details of which projects will be awarded $75 of city funds per square foot, to a maximum of $10-million per property, could come as early as next month.
Thirteen applications have been whittled down to a short list of six projects, now getting a closer inspection, McMullen said. “We’re really hoping that by the spring we can start to see the actual construction starting.”
The downtown core zone is bounded by 2nd Avenue SW to the north, the Canadian Pacific Railway main line tracks to the south, 9th Street SW to the west, and 3rd Street SE to the east. Over the next decade, the city say, about six million square feet of the greater downtown needs to be leased, converted, adapted to some other use, or demolished to help address the high office vacancy rate and stabilize office property values. A second stage of the incentive program, which will also include other adaptive reuses, demolition and rebuilds, is set to go ahead in the new year.
As of yet, there have been only a handful of conversions that have gone ahead, and not exactly in the location, or for the uses, that the city is most hoping for.
“Conversions are tough to do,” said Martin Tovey of the Minto Group, which transformed the International Hotel to apartment units that began renting last summer.
Mr. Tovey, the vice-president in charge of investments at the Ottawa-based real-estate company, said they looked at a couple of old Calgary office buildings to see whether they would be suitable for conversion projects. But “we couldn’t get the math to work.”
“If you’re an investor, are you going to pump millions of dollars into a conversion in a market where high-paying jobs have disappeared, vacancy is up, and landlords are offering incentives? Why would you do it? Why would you take on the risk that in 18 months, when the renovation is done, you can actually rent it?”
Mr. Tovey says the conversion of the International Hotel at 220 4th Ave SW into pet-friendly rental units was an easier overhaul than most because it’s a return to its original function: The 1970 structure was an apartment building that was turned into a hotel.
The old site of Birchcliff Energy Ltd.’s headquarters has also been transformed, into the Westley Hotel. And the 10-storey 1959 building that originally served as Dome Petroleum’s headquarters is in the process of being converted into Sierra Place, a $30-million affordable housing project. Set to open in September, 2022, it has the challenge of creating livable units in a former office building where there’s much more space between elevator corridors and outside windows than is desired for residential settings.
As a solution, some units have been designed with “inboard” bedrooms: interior rooms with no windows to the outside. In those cases, the main access to windows and daylight is saved for communal areas such as living rooms and kitchens.
“Ideally you want as much natural light as possible everywhere in a project. However, with the floor plate of the building we did have to make some compromises,” said Bernadette Majdell, chief executive officer of charitable real-estate developer and housing operator HomeSpace.
“We wanted to maximize natural light where people spend most of their time.”
The brightly coloured CUBE apartment building, a recent renovation by Strategic Group of what was a 40-year-old office building, is Calgary’s only honest-to-goodness office-to-residential conversion so far. It opened its doors in the summer of 2019. But the seven-storey building is located in the Beltline south of the downtown core, in a neighbourhood where people already want to live.
And still the conversion process was no walk in the park, said Ken Toews, the senior executive at Strategic Group who oversees major redevelopment projects. On a tour of the CUBE, he points to a side where a diagonal entrance originally sliced off one corner of the building, and was removed in favour of a well-lit entrance facing directly onto the avenue.
Office conversions have become a mainstay of his job, and Mr. Toews said he enjoys the creative aspect of designing an entirely new space within the confines of an old building.
“Doing these is kind of like a puzzle. It’s moving things around, and making it into a modern building.”
The location has to be right: The CUBE building was a good candidate for conversion because it’s close to public transit and across the street from a grocery store. Natural light is key: Many buildings are too long or too wide to even be considered. If you have to completely redo the exterior, Mr. Toews said, the conversion will probably get too expensive to make financial sense.
He talks about a plan to add balconies to each unit at a recent conversion project in Edmonton, where they have changed over two other buildings. They estimated the cost to be $10,000 each, but when they tore away the facade and realized the structural requirements, it was $20,000 a balcony – times 126. “That was a big deal,” he said. (They found cost-savings in other areas.)
The company wants to do more conversions, he said. “We didn’t have all the answers when we first started. We don’t have all the answers now. But you get better.”
The most near-term chance for an old office building in the core to be turned into residential units is the historic and architecturally significant, but long-neglected, Barron Building – also a Strategic Group property.
The project received a promise for an eventual $7.5-million in funding from the city in September (a separate funding decision from the development incentive program), and they’re currently working through an application process with the city.
Vincent Dods, managing partner at Gibbs Gage Architects who is working on the project for Strategic, said the 11-storey, 70-year-old Art Moderne gem is a strong candidate for a conversion. The Barron Building floorplate size is good for a transformation to residential units, and existing terraces will provide direct outdoor space for some of the to-be-built apartment units.
It’s not necessarily the old age of buildings that makes office-to-residential conversions difficult, he said.
“It’s the size and configuration of the floor plate. Because of Calgary’s penchant for having large headquarters, and larger tenants than most cities, floor-plate sizes in the downtown are typically 18,000-24,000 square feet. … That makes the buildings very deep for a residential unit.”
At the city, Ms. McMullen is encouraged by the response to the program, despite the obstacles. “We were very excited when we saw how many applications there were, and the quality.”
The goal, she said, is to pull more residential into different parts of downtown to create that sense of community in new nodes or clusters, as opposed to “what I’ll call the bookends – the East Village, and then the west end of downtown, with some in Eau Claire.”
Why, in her opinion, have few office-to-something-new conversions happened to now? “Part of that might be the ever-present optimism that oil and gas is going to come back, and office towers will fill themselves.”
But the economic reality of the situation, combined with the pandemic, means that building owners have been forced to look at different options, Ms. McMullen said.
“That’s why we’ve had such an uptick in our incentive programs.”
Greg Kwong, Calgary-based regional managing director for CBRE – a role he’s held for more than two decades – said office-to-residential conversions will be only one part of the solution for the city’s downtown.
“It won’t change the course of history, but it will help,” he said.
“The key issue is we need to diversify our economy, and get people working again.”
Vacant Calgary: This is part of a series on the future of Calgary’s downtown, hit by years of economic decline that has left its office towers nearly a third vacant, and the solutions that could drive a recovery.