Calgary has instituted one of the most aggressive programs in North America to encourage the conversion of office space to residential buildings.
At Inman Connect Las Vegas, July 30-Aug. 1, 2024, the noise and misinformation will be banished, all your big questions will be answered, and new business opportunities will be revealed. Join us.
A Canadian city could prove to be a lodestar for cities struggling to fill their half-empty downtown districts.
Calgary, in the Western Canadian province of Alberta, has instituted one of the most aggressive programs in North America to encourage the conversion of office space to residential buildings, and leaders of American cities are taking note, according to a report in The Wall Street Journal.
Calgary had a head start on the issue, when oil prices plunged between 2014 and 2016 and vacancy rates soared in the city, which is dominated by the oil industry. In 2021, the city approved a residential conversion program that utilized a subsidy of 75 Canadian dollars — equivalent to $55 per square foot — with no strings attached, such as stipulations that some of the developed housing be affordable, as some American cities have done.
The city has seen some progress, but it is slow to come, according to the report. In April, the first full conversion opened its doors: a 10-floor building with 112 apartments for rent known as The Cornerstone, that had a past life as an office building. Eleven more conversion projects with over 2,100 units are still in the works, the Journal reported.
Maxim Olshevsky, developer of The Cornerstone, told the Journal he paid about $55 Canadian dollars per square foot for the property, which he estimated was worth about $300 Canadian dollars per square foot prior to the oil bust. The low cost of the property paired with the subsidy made the project’s risk minimal, he said.
But even with Calgary’s hefty subsidy, the economics of these conversions are only workable because developers were able to purchase buildings for roughly what the land underneath them is worth, according to the report. Additionally, cities with more constrained budgets than Calgary may struggle to offer an equally generous subsidy.
In the meantime, higher construction costs and borrowing rates are stalling many of the in-progress conversion projects in Calgary, even with the subsidy. Developers must also come to the table with deep pockets because the subsidy isn’t paid out until the project is finished.
“Three years ago, C$75 a square foot was exactly the right amount to bridge the gap,” Greg Kwong, the head of CBRE Group’s Calgary region told the Journal. “With the advent of higher construction costs, that C$75 really isn’t enough.”
Despite the steep rise in costs, the local government isn’t planning on increasing the subsidy.
“We don’t have enough evidence to [increase the subsidy] at this point,” Thom Mahler, director of Calgary’s downtown strategy, told the Journal. “If the developers were to present a case, we would consider it.”
