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White: Office-to-residential conversions easier said than done

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The big idea that arose from the City of Calgary’s Downtown Economic Summit in March was the need to convert some of our downtown’s vacant office space into residential. Doing so would help create a more vibrant downtown in evenings and weekends. It tends to become a ghost town when the 150,000 downtown office workers return home.

This idea is not new. In the early 1990s (also a time when Calgary’s downtown office vacancies were very high), Paul Maas, an architect and urban planner at the City of Calgary championed the idea that Calgary’s downtown core needed more residential development. He advocated for residential above the shops in the historic buildings along Stephen Avenue. He also thought old office buildings would make for ideal conversions to residential. His ideas fell on deaf ears, partly because at that time, there was no market for residential development in the core or surrounding communities.

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The Calgary Downtown Association even had an architect on staff for a time, researching the feasibility of office conversions to residential. His conclusion — conversions were too costly, complex and there was no market for residential in the core.

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Have Times Changed?

Fast forward to today. There has been an incredible renaissance in urban living, not only in Calgary but in major cities across North America for more than a decade now. Today, new residential buildings are routinely under construction in the communities surrounding our downtown — West Downtown, Eau Claire, East Village, Bridgeland/Riverside, Inglewood, Victoria Park, Beltline, Mission and Hillhurst.

But in the downtown core itself (9th to 4th Avenue S.W. and 8th Street S.W. to Centre Street), there have only been two buildings with any residential component built since the 1990s — the Germain hotel-office-condo project and Telus Sky, currently under construction.

Office Conversions Are Difficult

Over the years, numerous studies have documented the difficulties of office-to-residential conversions: building code issues, costs, lack of market and parking requirements being the key ones.

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To get a current picture of the feasibility of office conversion in Calgary, I spoke to Bruce McKenzie, vice-president of business development at the NORR Calgary office, as they have probably designed more urban residential buildings in Calgary than any other architectural firm.

He was quick to agree. Office conversions face many challenges, including:
1. Inability to control construction costs due to unforeseen extras (renovation/code extras).
2. Lack of parking means most likely these properties will remain rental (and probably should as people aren’t apt to take the risk of an old building and the potential future condo fee escalations).
3. Mechanical systems are totally unusable from office to condo/rental, so a total gut job is usually needed.
4. Never able to achieve National Energy Code of Canada for buildings’ envelope requirements.
5. Floor plate sizes are too deep to create usable residential space at appropriate scale, for instance smaller units, which are typically what the market wants in conversion buildings.

That being said, NORR Calgary is currently doing several conversion studies, with one downtown Calgary project in working drawings.

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I also connected with Strategic Group, which owns a number of older buildings in downtown Calgary and is doing an office-to-residential conversion of the Harley Court building in downtown Edmonton.

COO Randy Ferguson indicates his firm is a big proponent of conversion when certain criteria are met:

1. Design efficiency. Note: Not as many office buildings are designed in a way that facilitate repurposing as many people would think. Side core, offset core, odd rectangular buildings, oversized floor plates — all drive inefficiency and quickly are eliminated as they can’t meet this requirement. Also, they must be able to accommodate built-in amenities such as a rooftop terrace, fitness centre, or community space.
2. Location. Must have urban living amenities nearby, such as grocery, street life, churches, arts facilities, sports facilities, cool restaurants, bars and shopping.
3. Near major employment districts.
4. Close proximity to high-speed public transportation.
5. Walkable 24/7 streets.
6. Rental demand in the neighbourhood.
7. A mix of architectural expression and affordability in the neighbourhood.

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He indicated the three biggest barriers to conversions are inefficiency of design, zoning, and lack of demand for residential.

Ferguson says Strategic Group “is currently studying the assets they own in Calgary to ascertain which may be appropriate for conversion, and whether or not office or residential are the highest and best use,” adding “some office buildings are too successful to convert.”

When asked how the City of Calgary could foster more office conversions, his response is plain and clear.

“We believe the call to action is not to provide incentives, rather to facilitate the approval process by expediting matters such as zoning, permitting and plans examination. This would outweigh any incentive a municipality is at liberty to provide.”

Recently, while on Twitter, I learned Winnipeg-based Artis REIT has proposed the redevelopment of Calgary’s Sierra Place (7th Avenue and 5th Street S.W.) office building to residential. Zeidler BKDI Architects has recently submitted a development permit on its behalf, proposing to convert the 10-storey, 92,000-square-foot building into a 72-suite residential building.

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Obviously, while converting old office buildings to residential is difficult, it is not impossible.

Old Buildings Are Not The Problem

Calgary’s downtown office space vacancy problem is not with its older buildings, but rather with its tall shiny new buildings. Some quick math shows older office buildings (C Class) make up only six per cent of the total downtown office space (or about 2.3 million square feet), of which 630,000 square feet is vacant. The conversion of three or four older office buildings will not solve our downtown office vacancy problem.

On the other hand, Class A and AA office space (newer buildings, best location, best amenities) make up 72 per cent of the total downtown office space. Currently, there is about 7 million square feet of vacant A and AA space (or about 65 per cent of the total current vacant space, to become higher with the completion of Brookfield Place and Telus Sky). The reality is Class A or AA office buildings are not good candidates for conversions from both a design perspective and location, as well the owners (pension funds) have deep pockets and, for them, the best return on their investment is still as offices.

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Last Word

One might think Calgary’s 10 million square feet of vacant downtown office space would be ideal for Amazon’s HQ2 (Amazon recently asked cities across North America to send them a proposal regarding how they could accommodate 8 million square feet of space for up to 50,000 employees for a second headquarters). The reality is that its buildings have very specific requirements that would make retrofitting costly. FYI: West Village would be a perfect spot for Amazon’s HQ2.

Also let’s not forget a healthy downtown needs older office buildings. They offer the cheaper rent and funky character spaces that are very attractive to start-up businesses, the exact businesses we want to attract downtown to help diversify the economic base.

Today’s start-up in a tired older office building could be tomorrow’s Amazon.

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