Rising interest rates. Increasing vacancy rates of commercial office buildings. Rampant price inflation. The commercial real estate market faces many challenges in today’s climate, and these trends are creating a shift in downtown economies from coast to coast, many of which have relied on the office sector for sustained long-term growth.

Even as economies return to normal, many companies are continuing with their remote work-from-home policies. This has made centralized office locations redundant and an unnecessary costly expense. Although there have been pushes from organizations and governments to encourage businesses to force office workers back to the office, others see the writing on the wall: there is no going back.

As a result, commercial real estate units are being repurposed for residential use.

A recent Canadian Urban Institute (CUI) report projected that converting downtown office buildings into apartments could create approximately 20,000 residential units.

“While conversions can be complex, involving a shift in business models, skilled trades and financial resources compared to those needed for ground-up construction, there is value in considering conversions for a variety of stakeholders,” the report stated. “Developers can benefit from quicker timelines for approval and completion with similar costs for a retrofit than to build a new one.”

So, is this a pipe dream or a realistic pursuit? Perhaps Halifax can answer this question.

Commercial Office Buildings in Halifax Being Retrofitted for Residential Use

Over the last couple of years, Halifax developers have proposed transforming vacant downtown office space into one-, two-, and three-bedroom apartments. These multi-million-dollar investments are expected to provide housing to hundreds of families throughout the Atlantic Canada municipality.

When the project was announced, Nova Scotia Advanced Education Minister Brian Wong told reporters that it would be up to the landlords to ensure these units are extended “to the right people that qualify.”

In addition, the province is investing nearly $2 million to help convert the half-century-old building in downtown Halifax.

But it is not only Halifax looking at comparable developments in the Canadian real estate market.

A New Trend in Commercial Real Estate

A growing number of Canadian cities facing high office vacancy rates are looking to kill two birds with one stone: achieve affordable housing and support downtown economies. In fact, 12 major commercial real estate markets are considering this proposal, according to a recent RE/MAX report.

In Calgary, developers are receiving a $75-per-square-foot subsidy for converting offices to residential. To date, ten buildings have been approved. Calgary plans to spend $153 million to aid building owners in turning offices into residential units as part of the city’s downtown development incentive program.

“By way of conversion, more than 1,200 new homes will be created, and approximately one million square feet of commercial office space will be eliminated, breathing new life into Calgary’s downtown core,” the RE/MAX report stated.

Similar proposals are being discussed in places like Toronto, Ontario; Ottawa, Ontario; Winnipeg, Manitoba; and London, Ontario. However, the greatest barrier to this type of development is red tape.

Even the federal government is chipping in, investing approximately $600 million to assist developers in converting office space into new rental housing. This is true at both the provincial and municipal levels. Industry experts assert that officials need to make zoning amendments, speed up the application process, and bolster approval numbers on conversions.

Are Changes in Commercial Real Estate Easier Said Than Done?

In the end, is this a venture that is easier said than done?

Architecture and planning experts purport that it can be done in theory. But if the building needs to be in better shape, then it might not make the office conversions work.

Steven Paynter, a director and architect in Toronto with Gensler, an international architecture and planning firm, told CBC that a conversation calculator was developed that compares office towers to residential buildings. It assesses various components, such as location, floor plans, size, number of windows, elevators, plumbing needs, and other facets of a building. If an office receives a score of 80 or higher, it will not meet the criteria to repurpose for residential use.

That said, how many offices could realistically be developed into residential?

Twenty-five percent, he revealed in an interview with the news outlet.

“For example, Calgary has a lot of similar 1970s buildings which are great for conversion. By contrast, we found that Boston, with a lot of much older and smaller buildings, had a success rate of under 10 percent,” Paynter stated.

Nevertheless, these schemes, which might seem grandiose initially, are quickly becoming a reality across North America.

What was once a space for cubicles might soon be a home office.