Calgary’s downtown is currently in the midst of a significant transformation. According to David Wallach, owner of Barclay Street, “The one-two punch of the oil price war with Saudi Arabia/OPEC (2015 – 2019) and the COVID-19 work/gathering restrictions (2020 – 2021) hollowed out office spaces via mass layoffs and work-from-home mandates.”
High vacancy rates in commercial buildings (an estimated one-third of downtown office spaces were unoccupied) demanded action by municipal policymakers, which is why the City launched the Downtown Development Incentive Program (DDIP). According to John Savard, owner of Bedrock Realty, more than 1.5 million square feet of Calgary’s downtown office buildings have now been scheduled for conversion to residential and hotel space.
Savard says, “The Cornerstone (former SNC Lavalin Building; 104,000 square feet) is the first to have completed conversion to a residential building.” Thanks to these urban redevelopment efforts, Calgary’s downtown is showing signs of slow but steady recovery; however, such progress doesn’t come without challenges.
Wallach explains, “As employees were called back to the office and the City’s office-to-residential conversion program gained traction, the amount of space with no headlease in place has decreased and the amount of space back in use has led to decreased sublease availability.”
The downtown retail market is thus stressed, signified by lower-than-desired foot traffic and a narrow retail vacancy range of 7.1% – 9.2% from early 2016 to present, according to Wallach. More promisingly overall, he says, “As of Q1 2024, downtown vacancy was 20.2%, with 25.3% of total space available for headlease/sublease/sub-sublease/office-share, etc.”
Certain types of commercial properties are in greater demand. Wallach explains, “Tenants who occupied lower-end B-class and C-class spaces in the past are now being driven to higher-quality properties as office-to-residential conversions effectively evict them.”
The Downtown West End was once popular for dirt-cheap rents on C-class properties, but now, continues Wallach, “With several B- and C-class properties in early stages of conversion, tenants with short-term leases are under tremendous pressure to upgrade when their leases come due, as the availability/inventory of equivalent spaces is shrinking.”
Despite this transformation, Savard says, “The Downtown West End office market continues to host the least expensive office spaces in the city.” He adds, “The cost of parking on the west side of downtown has also decreased.”
Maxim Olshevsky, CEO and founder of Astra Group, agrees: “The Downtown West End is the hotspot for conversions. As these projects complete, I expect we’ll see a sharp increase in vitality and vibrancy.” He says that the collaborative approach, expedited permitting, and financial incentives associated with the DIPP have prompted 14 announced conversions; “The City’s proactive stance and support have been instrumental in making these projects feasible.”
Lower taxes/rent per square foot in the west end may have appeal, but development and conversion projects often come with pushback. Words like ‘gentrification’ carry negative connotations due to the economic and social impacts these projects can have on existing communities. As property value and living costs rise, for example, long-term residents may face losing their homes and heritage. An influx of higher-income residents into the newly converted residences can exacerbate this displacement, with lower-income families left without affordable living spaces.
Similarly, smaller locally-owned businesses may be priced out due to rising rents and leases, and replaced by larger businesses catering to wealthier clientele, which can erode the character and economic diversity of a neighborhood, all of which can contribute to the perception that municipal policy prioritizes economic gain over community stability and cultural preservation.
But Olshevsky, who handled The Cornerstone conversion, says, “Our projects aim to be inclusive and equitable, offering affordable units and partnering with nonprofits. The buildings we convert are underutilized, and community residents and organizations seem to appreciate the increased safety, vibrancy, and economic activity.”
According to Savard, “While the intention of the City’s conversion projects is to utilize vacant and mostly vacant B- and C-class office buildings and repurpose them to higher tax yielding residential and hotel buildings seems to make sense, the program is not without unintended consequences. The removal of 1.5 million square feet of B- and C-class office space has displaced hundreds of smaller businesses.”
This displacement adds costs to these small businesses as they’re forced to move to likely more expensive office spaces. Savard continues, “Today, Calgary’s office market has a shortage of small, 1,000 – 6,000 square foot move-in-ready office space.”
To deal with this, he explains that existing larger floor plate buildings are being partitioned and divided, which is a costly endeavor. “In this current environment,” Savard says, “the costs of construction continue to increase, and all of these factors are increasing the costs for small businesses in Calgary.”
There are many other challenging aspects of office-to-residential conversions. “In general, Wallach explains, “office buildings are fundamentally different from multifamily housing in structure, and the potential for residential conversion varies widely.”
The structure of a building – how it was built – is extremely important. With the Stephenson Building, for example, a significant challenge was the building’s post-tension concrete structure – a major barrier to retrofitting Class B- and C-office buildings. Wallach states, “If you hit a post-tension cable while you’re drilling a hole in the slab for a plumbing stack, it kind of explodes out of the sides of the building.”
Furthermore, certain areas of Calgary’s downtown lack neighbourhood amenities, such as schools and grocery stores. Wallace points out that access to daylight in living spaces is also a challenge office-to-residential conversions face, as the number of units required to make the proforma work isn’t always compatible with the spatial configuration of the building.
According to Olshevsky, “Amenity-rich Class-A buildings are in high demand. These buildings offer modern facilities, better locations, and more services, which make them attractive to tenants looking for quality spaces.”
Cost is a major hurdle, explains Wallach. Strategic Group’s retrofit of The Cube cost $350 per square foot (35 per cent more than the estimated construction cost of a typical high-end multifamily building in Calgary). Similarly, the cost per square foot at Neoma was calculated to be $315. Therefore, it’s ideal when conversion projects have a floor plate akin to a residential building and nearby amenities like restaurants, entertainment, and transit.
Expanding on this, Olshevsky says, “The biggest challenges revolve around financing rather than construction.” For Astra Group’s projects, there’s a focus on environmental sustainability, including embodied carbon savings and energy efficiency. He adds, “We provide affordable housing and work with local nonprofits, and over time, we anticipate improvements in safety, economic activity, and overall vibrancy in the neighbourhoods where these properties are located.”
“We’ve seen strong initial demand,” Olshevsky continues. “We achieved over 50 per cent occupancy in our first two months of leasing. While we expected mostly families due to the two- and three-bedroom units, we’ve attracted a very diverse demographic. It’s been quite interesting to see.”
There may yet be challenges ahead, but with careful planning and development, supported by smart policymaking, Calgary’s downtown has a promising future. “We’re taking major steps in the right direction; however, there’s still lots of work to be done,” Olshevsky concludes.
As occupancy rises, rents will slowly climb. Therefore, for tenants who need to renew in the next 24 months, Wallach suggests, “The opportunities are either early lease renewal or blend and extend” – something for Calgarians to consider.
