Reimagining Real Estate: Turning Commercial Spaces into Living Spaces

Commercial real estate is constantly evolving. Over the last 5 years Canada has seen a rise in vacancy due to the transition to remote work coming out of the COVID-19 pandemic, a population surpassing 40 million people, and a relatively stagnant housing stock. Those in the Canadian commercial real estate (CRE) industry are now facing a unique opportunity to repurpose their properties to meet the growing demand for housing in major cities across the country.

Office real estate vacancy passed 18 percent in 2023, up from 10.9 in 2019, and is still expected to rise. In those same 5 years, Canada grew from a population of 37.6 million to over 40 million; 1.2 million people came to Canada in 2023 alone.

Unfortunately, housing has not kept up with growth; the disconnect between supply and demand coupled with other factors – including rising interest rates – has resulted in a housing market that has become alarmingly unaffordable for many, according to CIBC.

Retrofitting commercial real estate, namely office spaces, into residential housing can effectively address Canada’s housing crisis. This approach can optimize the use of existing properties in a way that meets the needs of Canadians and aligns with sustainability goals across the country.

Examples of buildings that have or are being converted include:

• Formerly a water treatment facility, the historic Waterworks Building in Toronto is now a mixed-use building with housing.
• Vancouver’s former Post Office building is being transformed into a mixed-use space with residential units, retail, and office space.
• The Slayte in downtown Ottawa was a government office building built 50 years ago and is now a 158-unit residential housing with amenities such as a gym and rooftop terrace with shared barbecues, a hot tub and lounge.

The benefits of retrofitting include:

• Addressing Housing Shortages: Retrofitting commercial properties into residences quickly increases housing stock and provides more options for city dwellers.
• Sustainable Development: Retrofitting existing buildings is more sustainable than new construction by “contain[ing] the millions of kilograms in CO₂ emissions that are embedded in the concrete of old commercial buildings” and reduces the environmental impact associated with demolition and new materials.
• Economic Revitalization: Transforming vacant or underutilized commercial spaces into housing can create jobs in construction/renovation and stimulate local economies where “a variety of professionals and service retail workers…are living in the community where they work,” which can revitalize urban areas that have seen decreased commercial activity.

Obstacles and considerations:

• Zoning and Regulations: Regulatory frameworks must be adaptable to facilitate the conversion of commercial properties to residential use. Instead, zoning laws often pose a barrier to development and are inconsistent across the country. The Slayte took a year to permit; in other cities, the process can exceed two years and 4-6 weeks in Calgary.
• Design and Structural Limitations: Commercial offices and residential housing are designed to meet their fundamentally different purposes, and reconfiguring existing building systems can be complex and costly.
• Financial Viability: Retrofitting commercial space to residential is expensive, particularly if significant structural changes are required, even though the costs of materials and labour remain constant, whether building or retrofitting. Governments can encourage office-to-residential retrofits with funding opportunities and tax incentives like the $600 million committed by the Liberal government.

Moving Forward with Successful Retrofitting Initiatives

To fully realize the potential of retrofitting commercial real estate into housing and meet the needs of Canadians, according to those behind projects in Canada, “We need municipalities to do whatever they can to speed up development, to provide incentives to get moving.” At the same time, developers should embrace innovative design solutions to overcome technical challenges.

Sources:

1. “Is Canada facing a housing affordability crisis?” – CIBC.
2. What makes this downtown Art Deco landmark into a vibrant community?” – Toronto Star.
3. “Vancouver’s Post Office redevelopment project” – Vancouver Sun.
4. Slayte office-to-residential conversion project now 84% leased, InterRent REIT says” – Ottawa Business Journal.
5. “Turning empty offices into housing is a popular idea. Experts say it’s easier said than done” – CBC News.
6. Turning offices into homes could help address the housing crisis, but can it be done?” – CTV News.
7. “Financial incentives for urban redevelopment” – Government of Canada.
8. “Commercial real estate is in a growing crisis that seems to have no end” – Globe and Mail.
9. “In search of novel solutions to the housing crisis? Look to Calgary” – Financial Post.