Could yesterday’s offices become tomorrow’s homes? It’s harder than you might think

Two problems facing Canadian real estate seem, at first glance, like an obvious answer to one another.

The first is that there aren’t enough homes for everyone in Canada to live affordably; the second is that more offices than ever are sitting vacant or half-empty with remote and hybrid work styles keeping workers at home and away from deteriorating downtowns.

A lack of supply in one corner of the real estate market and too much in the other begs the question: why not convert empty offices into housing units, and kill two birds with one stone?

It’s an idea that’s already taking off in some Canadian cities — but one that developers say sounds a lot simpler in principle than it is in practice.

A building sitting at 706 7th St. SW. in Calgary perhaps encapsulates the potential of the model.

Once the headquarters of now-defunct Dome Petroleum, the 10-storey offices had been vacant for two years before the non-profit housing provider HomeSpace Society stepped in and took over the bones of the building.

“Before HomeSpace, this building was used for absolutely nothing. It was an empty office,” recalls HomeSpace CEO Bernadette Majdell in an interview with Global News.

After less than a year of renovations, Neoma relaunched last September as an 82-unit apartment building with permanent affordable housing as well as transition services for families facing homelessness in the downtown core of Calgary.

The project was kickstarted with help from a City of Calgary program that’s allocating $1 billion over 10 years in hopes of converting nearly six million square feet of empty office spaces into housing and other productive uses.

The program will cover $75 per square foot of converted office space, up to $15 million per project. In Neoma’s case, both the province and federal government also jumped on board to help fund the adaptive use.

Majdell says that Neoma was an opportunity to reanimate a part of Calgary’s core while finding affordable housing opportunities for the city’s most vulnerable population.

“We’re very fortunate because there was nothing but support. I think the move towards converting office to residential was such an important move for our city,” she says.

Empty or half-filled offices in Canada are more than just an eyesore or a waste of space — they’re a risk to the economy.

Experts told Global News last week that Canada’s commercial property sector is vulnerable to higher interest rates as office vacancy rates remain elevated in many major cities such as Toronto and Vancouver.

Canada’s biggest lenders are tied to the health of not just the housing market through their mortgage loans but to financing for commercial landlords as well, which economist Craig Alexander said could drive a “weaker” economy and the possibility of a steeper downturn than initially forecast if those loans go sour.

At the same time that empty offices are threatening to tip the economy into a recession, governments at all levels in Canada have set ambitious goals for adding to the existing housing supply to keep homes affordable for Canadians and the record levels of newcomers landing in the country.

Oz Drewniak, president of Ottawa-based developer CLV Group, says the buildings that are sitting empty lately in the nation’s capital are often left behind by the federal government as the public service looks to downsize its expansive office footprint.

That was the case for 473 Albert St., an 11-storey office conversion in Ottawa that CLV Group recently took on for sister company InterRent REIT. The Slayte, as it’s now called, started accepting rental tenants in the fall of 2022 and is eyeing an official launch this coming summer.

Offices that tend to retain and attract tenants these days are typically those considered Class A or B, while vacant buildings in Ottawa are often the lower-tier Class Cs, which Drewniak says makes these prime targets for conversions.

“If our downtowns are going to start to decay because of office vacancies that are increasing, then it’s not good for anyone,” he tells Global News. “We see it as a really big win, not just from a residential housing supply, but also from just a downtown vitality component as well.”

While the pandemic might have accelerated the transition to hybrid and remote work, the Slayte project in Ottawa began even before COVID-19 entered our collective lexicon in 2019.

Drewniak says CLV Group had to take on plenty of study in advance to see if the project was even possible. Of the 10 or so proposals that come across his desk for an office-to-residential conversion, he says maybe one office is actually viable for the switch.

That’s because turning an office into an apartment complex isn’t as simple as just throwing up a few walls where cubicles once stood. Buildings need to be fully gutted down to their concrete structures and installed with entirely new electrical wiring, plumbing fixtures and other details to make them livable — not just workable.

“It’s a massive undertaking. Like, you have to start from scratch,” Drewniak says. “Nothing about an office works for residential. Nothing at all.”

Commercial real estate firm Avison Young projected in a report last month that 34 per cent of office spaces in 14 major North American cities could be candidates for “adaptive reuse.” Hundreds of buildings in Toronto, Montreal, Vancouver and Calgary were among those with potential, according to the study.

Zoning is also a consideration for cities, as some offices are zoned strictly for commercial use and will have to be adapted to residential or mixed uses.

In terms of efficiency, starting from an empty lot is much easier because you can design a frame that fits the building’s purpose from scratch, Drewniak says.

Developers in charge of a conversion are also at the whims of previous builders and architects, which raises the risks of finding “hidden gems” that he says could derail a project or add significant costs.

With Slayte, for instance, some spaces that formerly housed a government ministry had a layer of security mesh hidden behind plaster walls that wasn’t detailed in the original blueprints.

“I’ve heard a lot of developers and a lot of potential developers say that it would be a pretty easy conversion, but there’s nothing easy about it,” Drewniak says.

If there’s a chance an existing building could work to boost housing stock, there are also environmental benefits to preserving the concrete structure of an office.

CLV Group brought in an environmental consultant to evaluate the Slayte project as it was in development.

Drewniak says that according to that final report, retaining the existing Albert Street office structure overlaying the foundation and frame for a new build kept some 720 concrete trucks from having to drive through downtown Ottawa over the course of the development.

Working with concrete is very carbon-intensive; the savings work out to 4,500 tonnes of carbon conserved over the life of the project, according to calculations prepared for CLV Group.

“We’re trying to find ways to lower the environmental impact and lower the amount of carbon (in construction),” Drewniak says. “These are perfect opportunities to do that.”

CLV Group continues to see potential in office conversions. But Drewniak says in order to bring the ratio of viable projects up from one in 10 to even 50 per cent, governments need to come to the table with more incentives for industry to take on the technically complex renovations.

He points to Calgary’s ambitious conversion program as a model he’d like to see adopted in Ottawa and beyond.

Majdell agrees with Drewniak’s take that while the Neoma project was a success for HomeSpace, the technical challenges in executing a conversion are the biggest barrier to future projects in a similar vein.

She says HomeSpace was “very fortunate” that government players saw the potential in Neoma and were willing to support it every step of the way.

Coming out of the pandemic, Majdell argues that policymakers, private sector players and non-profits like HomeSpace ought to partner on more adaptive uses for offices and downtown streetscapes facing an uncertain future.

“I think there’s a great opportunity, from an affordable housing lens and others, to really be creative with vacant spaces.”