New report suggests solutions for Calgary’s ‘office vacancy crisis’

Click to play video: 'New School of Public Policy report examines Calgary’s office vacancy rate' New School of Public Policy report examines Calgary’s office vacancy rate
A new report from the School of Public policy outlines some potential solutions to deal with Calgary’s office vacancy rate. As Carolyn Kury de Castillo reports, the report says the pandemic has highlighted the need for flexible and innovative strategies – Feb 3, 2021

A new report is offering recommendations for what it calls Calgary’s “office vacancy crisis.”

The report from the University of Calgary’s School of Public Policy examines the office vacancy rate, its implications and strategies for building use.

Read more: Calgary’s downtown office vacancy rates hit record levels amid oilpatch woes

“Calgary and Alberta have the highest office vacancy rates of any major Canadian city and province,” the report said.

In 2014, the downtown office vacancy rate was 6.1 per cent, according to the report. In 2020, it was 24.7 per cent.

The report, which was released Wednesday, said even before the COVID-19 pandemic, Calgary was “already experiencing a serious office vacancy crisis.” Now, with more people working from home, the outlook is even bleaker.

Story continues below advertisement

Read more: How Alberta’s commercial real estate landscape is changing amid COVID-19 pandemic

It will take at least a decade for the market to absorb the current amount of empty office space, the report said.

Adaptive reuse

The authors suggest the solution comes in the form of adaptive reuse, which involves repurposing office space as a mixed-use building or affordable housing. The report calls it a “promising approach” to address the office space surplus — but it can be complicated and expensive.

Benefits of adaptive reuse include limiting urban sprawl, revitalizing declining neighbourhoods, saving money by reusing structural parts and meeting sustainability objectives.

But not all buildings are suited for conversion and owners must be convinced that “conversion is a better alternative than demolition or maintaining the existing condition and waiting for economic conditions to recover,” the report said.

Read more: 4 downtown Calgary office buildings empty as vacancy rate climbs: report

One of the report’s authors said the city could use larger units that accommodate families downtown.

“We mention that Calgary has the lowest percentage of affordable housing in any major city in Canada,” said Jenna Dutton, a research co-ordinator of the urban policy platform for the School of Public Policy.

Story continues below advertisement

“With that in mind, I think there is definitely an opportunity, especially considering the downtown is located in very close proximity to public transit… I think there’s great opportunity for affordable housing and also to mix market housing with different levels of affordable housing.”

Read more: City of Calgary embracing more risk, opportunity during pandemic

Dutton said the city could create a phased plan where adaptive reuse happens in a staggered way across downtown to “maintain some level of vibrancy.”

The report’s six recommendations are: developing an inventory of buildings that are candidates for conversion, engaging with stakeholders, giving consideration to local government, creating an office vacancy policy, aligning with other projects on environmental goals and increasing affordable housing.

Vacancy to vibrancy

There are several challenges of converting downtown office space, which include a limited availability of empty buildings as well as high costs to retrofit an entire building from office space to multiple residential units.

“The restriction really has been the actual physical structures, the size of the floor plate, where the elevator core resides, and things like that,” said Greg Kwong, executive vice-president of commercial real estate company CBRE, on Wednesday. “Then, quite frankly, the cost to repurpose has always been restrictive.”

Story continues below advertisement
Click to play video: 'New report suggests solutions for Calgary’s ‘office vacancy crisis’' New report suggests solutions for Calgary’s ‘office vacancy crisis’
New report suggests solutions for Calgary’s ‘office vacancy crisis’ – Feb 3, 2021

To tackle restrictions with adaptive reuse, Ward 6 Coun. Jeff Davison brought forward a notice of motion to council in December to explore potential regulatory and financial investment incentives for the conversion of downtown office space and the development of new high-density residential complexes.

“We know that just creating more people downtown will move us from sort of a vacancy to a vibrancy state,” Davison said.

“Through the notice of motion, what we want to do is go to the federal government and ask [the Canada Mortgage and Housing Corporation] to work with us on how we might convert more of those buildings faster.”
Story continues below advertisement

Davison, who described the report’s findings as “fantastic,” noted the timing of its release as administration is expected to report back to council at the end of 2021’s first quarter with potential solutions to create development incentives.

“If we’re going to compete for investment dollars, if we’re going to compete to move from a vacancy to a vibrancy state, all of those things matter,” Davison said. “It’s going to mean moving at the speed of business — not at the speed of government.”

‘There’s a lot of opportunity’

Dutton warned that if measures aren’t taken to deal with the vacancy problem, Calgary risks economic impacts, vandalism and safety hazards that come with unoccupied buildings as well as a downtown that people won’t want to visit.

Read more: Downtown Calgary office building owners get creative to fill floors

“With larger pockets of vacant offices, that relates to businesses staying open,” she said.

“Then you get these large areas of the downtown that won’t really have any activity, which is concerning because I think there [are] amazing things about Calgary’s downtown and connectivity to the river path. But if you have those areas where there’s nothing, then people don’t really want to live there either — or near it. So then I think it has cascading effects in terms of development in every realm.”
Story continues below advertisement

Examples of Calgary buildings that have been converted include the former St. Louis Hotel, the King Edward Hotel, the Simmons Building and Cube.

“Any vibrant downtown has people [who] work there and live there. We’ve been trying to get to the ‘live there’ component but we’re not there yet,” Ward 3 Coun. Jyoti Gondek said. “I think, as a city, we fell into the trap of segregating uses for a very long time, and we’re trying to recover from that habit.”

According to the City of Calgary, office buildings have lost 13 per cent of value — nearly $2.3 billion — over the past year due to higher vacancy rates and lower rents.

“When properties depreciate, we have less tax revenue, which limits our ability to deliver services to Calgarians,” Gondek said. “It’s absolutely critical for us to fill those vacancies.”

Read more: Calgary’s downtown office market seeing positive trend: Avison Young

According to Kwong, the biggest solution to the downtown office vacancy rate is a diversified economy — not retrofits.

“It’s a symptom of the bigger issue, which is unemployment,” Kwong said. “If we get people back to work, and quite frankly, working downtown, all this goes away.”

Sponsored content