Coming as no surprise to Calgarians, downtown office vacancy rates remain high. We have heard the stories and stats over the past few years and - although we are seeing recovery in the Calgary real estate market - downtown office vacancy still hovers around 23%. This means basically every 4th building you drive by is vacant. Additionally, there are several large-scale projects nearing completion which will further add to available square footage. To name a couple, Brookfield Place will put approximately 1.4 million square feet into the Calgary office market, and Telus Sky will add 460,000 square feet of office space. Granted some floors are pre-leased, however you will still be trading one empty space for another.
Interestingly enough, ARTIS REIT, one of Canada's largest real estate investment trust, is getting crafty in Calgary. ARTIS has announced they will be moving toward repurposing some of their Calgary office buildings into residential properties. The president and CEO addressed the change in use by saying - “I wouldn’t really call [repurposing assets from offices to apartments] a change in direction, since developing real estate to its highest and best use has always been integral to our mandate.”
The next burning question is - would the city allow this? Well, the city amended the Land Use Bylaw in June making it easier to repurpose your office into residential units. In fact, in some cases, only a development permit is required versus having to acquire a building permit.
The first focus for ARTIS will be Sierra Place located at 706-7th Avenue SW, Calgary. They are targeting this building due to the vacancy and location directly on the C-Train line. The gross leasable area of this building is over 90,000 square feet, and it is linked to the plus 15 walkway. They will be moving to make Sierra Place a 100 suite apartment building.
Of importance to the residential real estate industry, one should keep an eye on this trend as residential rental vacancies remain high as well. Should this trend motivate other REITs to do the same, we could be flooded with rental inventory, thereby affecting the landlords and rental rates and putting further downward pressure on apartment condo prices.
On the other side of the coin, this trend could mop up some of the downtown office vacancies and provide a great living solution for those who wish to walk out their door to work.
In conclusion, it is interesting to see REITs making a move to solve the vacancy issues by repurposing buildings.