Commercial Real Estate February 14, 2023

Finding New Purpose for Office Space

Since 2020, numerous office spaces throughout the country have been left empty or at a lower capacity due to many businesses adapting and committing to the work from home lifestyle. While several aspects of life have returned to their pre-pandemic ways, some companies have completely shifted the way they work. Remote and hybrid work has become the new normal, meaning that office spaces have either decreased their occupancy rates or eliminated them altogether.  


“Businesses that are trying to attract a younger workforce have recognized that something their employees want is more flexibility, so they don’t need as much office space.”- Penny Gurdstein, professor at the University of British Columbia’s School of Community and Regional Planning 


In order for office buildings to avoid losing money, their occupancy rate needs to be roughly 80% or higher, however, buildings all over the country are starting to drop below this threshold. As a result, office leases are not being renewed, meaning more and more potential for conversion. Transforming office spaces into apartments or condos has been trending for a while now, but the pandemic easily sped up the process. Since flexible work options have become the norm and residential rental prices surge across the country due to increased demand, there is a much greater need for more office conversions.  


Not only will transforming offices spaces help solve some of the housing problems across Canada, but these conversions also offer additional environmental benefits because they save on building materials and create less CO2 emissions. Ken Toews from the Alberta-based Strategic Group estimates that after four conversion projects they will have saved 56,000 tonnes of building materials and 17 tonnes of carbon dioxide emissions- the equivalent of taking 37,000 vehicles off the road each year. 


Some cities have strict zoning or protection rules for office spaces, making it more difficult for developers to get permission for conversions, while some building conversions just don’t make economic sense. Steven Paynter, principal at Gensler Architecture and Design has studied over 500 buildings across North America and predicts that about 25% would qualify for conversion. Paynter and his team have developed a calculator that compares potential office buildings to their benchmark for residential buildings. In order for buildings to be considered for conversion they are scored based on location, floor plan, size, windows, elevators, parking, and any other electrical or mechanical needs. Then, based on these elements, the building must score at least 80 out of 100 to qualify.  


Cities like Toronto are taking a little longer to jump on this trend as they are one of the cities with more strict zoning rules, but cities like Edmonton and Calgary have been trying to expedite the conversion process. The City of Calgary now offers a conversion grant of up to $75 per square foot as an incentive for developers. With the help of this incentive, the Strategic Group has completed three conversions with another one in the works between Edmonton and Calgary. These conversions have created over 200 rental units and counting, with the City of Calgary approving five additional conversion projects. If Calgary can achieve the 25% conversion rate that Paynter has predicted, they could potentially add 3,500 apartments at 1,000 square feet.  


These conversion projects have the ability to create sustainable and environmentally friendly housing options in many of Canada’s major cities. Steven Paynter stresses the fact that cities will need to rely on government support and community planning in order to see office conversions be successful.  


The next question is if these conversions will solve the housing affordability crisis? Time will tell.  



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