The conversion of office to residential space is an increasingly preferred option, Avison Young says
Calgary’s office sector is seeing vacancy rates trend downward, while owners of the market’s under-utilized B and C class office buildings are looking at opportunities to repurpose, according to a new analysis by Avison Young.
The region’s overall vacancy rate ticked down by 0.5% annually to 24% in the second quarter. The downtown vacancy rate had a more pronounced 0.8% drop, although it remained at an elevated 27.3% as of Q2.
“Much of the recent discourse around the office sector has centred around looming threats and the innovation required to meet the changing times,” Avison Young said. “As hybrid work appears to be the consensus going forward, under-utilization of office space will have significant repercussions for companies, cities, and the economy.
“Rising office vacancy rates are threatening valuations and could lead to massive write-downs on the horizon. Class B and C properties are likely to fare the worst in this scenario, which is why they have been the main targets for repurposing.”
Amidst ongoing discussions about remote & hybrid arrangements, it's crucial not to overlook the prospects of the #office market. Check out @CMPmagazine for more on the importance of quality spaces & their role in shaping the modern workplace: https://t.co/FI9WF2x1n5 #AYdifference
— Avison Young | Canada (@AY_Canada) June 13, 2023
Retrofitting a “serious consideration” in most markets
Avison Young noted that the conversion of office to residential space is an increasingly preferred option among high-vacancy markets like Calgary.
“In many ways, the local market has already begun to adjust to the shocks impacting the office sector,” Avison Young said. “Vacancy has declined, absorption has been on a positive trend, and tenants are flocking to amenity-rich A and AA class properties. Regarding office conversions, Calgary’s program is already several steps ahead of many of its peers.”
Calgary is thus well placed to surmount any further challenges in the office market.
“Much of this may have to do with the fact that the office sector here has been dealing with these issues for a longer time than most,” Avison Young said. “It may also have to do with the fact that the local economy is on the upswing, powered by growing employment and an immigration influx.
“Calgary’s proactive downtown conversion program is being closely watched by many and hybrid work isn’t anticipated to have the same drastic impact here as some other larger cities.”
