Millennials are breathing new life into Calgary’s empty office towers, industry insiders say. But it’s not a return to business as usual.
“We’re battling the storm,” says developer Riaz Mamdani, who has successfully repurposed several empty office buildings into hip new rentals and self-storage space targeting those who can’t or no longer wish to own.
“The market is changing,” says Mr. Mamdani, chief executive officer of Strategic Group, one of Canada’s largest privately held real-estate companies. “Millennials are more interested in renting than owning. We’re creating a lot more purpose-built rentals than ever existed before.”
Office conversions are the hallmark of Strategic Group’s business plan. By the end of 2020, the company expects to have reduced its Alberta office space by 18 per cent and increased its residential units by 53 per cent.
It’s a business strategy necessitated out of “desperation,” says Mr. Mamdani, because the company invested in commercial real estate prior to the collapse of the energy industry that devastated Alberta and Calgary, the headquarter capital of the oil sector.
According to commercial real-estate services firm Avison Young (Canada) Inc., Calgary’s downtown office vacancy rate was 24.4 per cent in the second quarter of 2019, down from 25.3 per cent in the first quarter and 26 per cent 12 months earlier.
Mr. Mamdani says that equates to about 11.6 million square feet. Put another way, that’s nearly seven Bow buildings of empty offices – the iconic 1.7-million-square-foot tower that represents the highs and lows of Calgary’s energy economy; the highs as it was built for Encana Corp. at the height of the boom; and the lows, as it emptied out entire floors during the bust. Encana’s recent decision to relocate its headquarters has been another blow.
Strategic Group is making new-use conversions work, largely because it owns the buildings, and is capitalizing on “generation rent” – a global trend which shows that millennials are opting to rent modern, brand-new apartments because they can’t afford to own.
According to a 2018 CIBC poll, in Canada, 65 per cent of people aged 18 to 37 rent or live with family. Most of those people – 94 per cent – do hope to someday buy their own home.
This year, the company successfully converted an aging inner-city office building with no prospects of a commercial tenant, into fully occupied rentals known as the Cube. The seven-storey, 51,733-square-foot building, which reopened as 65 new, trendy apartment rentals in May, was fully leased within months.
The $25-million renovation made economic sense because the company already owned the building, conveniently located next to a grocery store in an entertainment district called the Beltline.
The historical Barron Building, also in the company’s portfolio, is being restored into 94 rental suites, expected to open next year. The 11-storey building on Stephen Avenue, in the heart of downtown, was Calgary’s first skyscraper and home to its first oil and gas giant in 1951.
Repurposing office buildings for a new use is usually extremely cost prohibitive, but better than an empty building that costs cash flow in taxes and other expenses, potentially for years as it sits empty, says Greg Kwong, regional managing director of CBRE for Alberta.
Some owners and developers could go bankrupt and their buildings will be mothballed, he predicts, and something new will eventually emerge as the proverbial phoenix rises from the ashes.
Strategic Group provides an example. The company gutted an empty building in the suburbs, where free parking is amply available, to bring something new to Calgary. Avenida Food Hall & Fresh Market, in the Lake Bonavista neighbourhood, is an upscale European-style food hall that is a cross between a food court and a farmers’ market. The idea has proven so popular, about 7,000 visitors attend the food hall over three days spanning every weekend, says Mr. Mamdani.
Such success aside, Strategic Group says the road ahead to zero vacancy is years’ long for the city. “We’re doing the absolute best we can and are repurposing whatever space makes sense,” says Mr. Mamdani.
“Office space in Calgary is a not a viable business plan but we’re already in it, and are dealing with those consequences. Given that, to repurpose even just one spot, is great news.”