A Montreal-based developer’s decision to topple 77 Metcalfe St. could trigger a domino effect that sees more obsolete downtown office towers turned to dust – but logistical and economic hurdles will likely give property owners pause before going the demolition route, real estate insiders say. Groupe Mach last week announced plans to demolish a vacant […]
A Montreal-based developer's decision to topple 77 Metcalfe St. could trigger a domino effect that sees more obsolete downtown office towers turned to dust – but logistical and economic hurdles will likely give property owners pause before going the demolition route, real estate insiders say.
Groupe Mach last week announced plans to demolish a vacant 12-storey office highrise at the corner of Metcalfe and Albert streets and replace it with a new rental apartment complex.
The same company is already in the midst of tearing down another aging former government office building at 110 O’Connor St., a site that will also eventually be home to a new rental highrise.
In both cases, Group Mach felt it made more financial sense to rebuild from scratch rather than attempt to convert the existing structure into housing or another use – a process that typically costs almost as much as constructing a whole new building.
While 77 Metcalfe and 110 O’Connor are the first prominent downtown office towers to face the wrecking ball in decades, real estate experts say more and more building owners in downtown Ottawa might start to follow Groupe Mach’s lead as the vacancy gulf widens between top-end office towers with all the bells and whistles and a growing stock of older inventory that’s gotten long in the tooth.
“I think we’re going to see more of this,” said Darren Fleming, CEO of Ottawa-based commercial real estate brokerage Real Strategy Advisors. “These are high-vacancy, older-inventory buildings. The return on investment to stick a whole bunch of money (into a renovation) to attract an office tenant who’s paying historically low rent is not a good one.”
Built 60 years ago, the 140,000-square-foot tower at 77 Metcalfe St. hadn’t had a substantial facelift in three decades and was “functionally obsolete,” Fleming noted.
The previous tenant, Nav Canada, left in late 2022 and moved to nearby 151 Slater St., a former class-C building that was gutted and totally remodelled by Metcalfe Realty a few years ago in a bid to lure a blue-chip tenant.
Metcalfe Realty’s strategy paid off when Nav Canada decided to jump ship from 77 Metcalfe to take over 12 floors in shinier new digs a few metres away on Slater. And it’s that so-called “flight to quality” that has other owners of past-its-prime downtown real estate mulling their options, Fleming explained.
“The vacancy kind of waterfalls downhill to the lowest class of buildings,” he said.
There are a number of ways owners of such properties can try to solve the vacancy problem, he added.
They can do a complete makeover, like Metcalfe Realty did on Slater Street. They can convert the building to residential or some other use. Or they can tear it down and start all over.
Yet while examples of the first two options are easy enough to find in downtown Ottawa – about half a dozen highrises are in some stage of being turned from office space into housing, for example, and several marquee office complexes have undergone multimillion-dollar renos in recent years – demolitions remain a rarity.
Costly endeavour
A big part of it is simple economics, industry insiders say. The cost of painstakingly dismantling a decades-old office tower in an environmentally friendly way isn’t for the faint of heart – even if the alternative is carrying the cost of maintaining a virtually empty building.
“When a building is physically and functionally obsolete, it’s still a tremendous cost to demolish a building and hope that you can put out the right plan (to replace it),” said Marc Morin, founder and president of Ottawa’s Seva Commercial Real Estate.
Morin said he was “surprised” that 77 Metcalfe is being torn down, “but if the owners are well capitalized, I’m sure it makes great sense to take that approach.
“You either need to have exceptionally deep pockets or it needs to be almost a generational-type building where you’ve owned it long enough that you’ve depreciated it to the point that if it is physically and functionally obsolete, that it makes sense to tear it down and start over. I think conversion is still the better way to go if the building has the capacity.”
But not all obsolete office towers lend themselves to being repurposed as something else. The floor plate might not be the right shape to accommodate apartments, for example, or the building might be plagued by so many structural issues it would need to be gutted and rebuilt virtually from scratch anyway.
And even if an aging office complex still has strong enough bones to be rebuilt, it’s a task that’s often easier said than done.
For example, Brent Arseneau, vice-president of leasing at real estate firm Colonnade BridgePort, told OBJ in a 2023 interview he figured it would cost about $60 a square foot to remediate the one-million-square-foot C.D. Howe Building at 240 Sparks St. to current health and safety standards – a $60-million pill that would be tough for most developers to swallow.
Another decaying office building dating from the 1970s, L’Esplanade Laurier, is now on the federal government’s disposal list. As Arseneau noted two years ago, it’s got a laundry list of structural woes, and he summed up many developers’ thoughts about the best course of action to remediate it.
“I think the theory that’s been rolling around (for L’Esplanade Laurier) is you just have to blow that place up and then develop a better plan for new buildings,” he said then.
In an interview last week, Fleming also cited the marble-clad, two-tower complex on Laurier Avenue as a top candidate for a tear-down.
“We’ve got some buildings with big question marks sitting over their heads,” he said. “So 77 (Metcalfe) was one of them. Now we know the answer. L’Esplanade Laurier is another one.”
But Fleming also noted that the cost of demolishing one million square feet of real estate could make anyone kicking the tires on L'Esplanade Laurier think twice about buying it with the goal of redeveloping the property.
“At least 77 Metcalf is small enough that you don’t need a government subsidy or (own) a hockey team to reposition the asset,” he said. “These are things that a group that’s entrepreneurial with some cash like Groupe Mach can take on.”
Federal incentives
Fleming said it’s not hard to find smaller buildings in the downtown core that are ripe for the wrecking ball if that’s the route the new owner wants to go, pointing to a four-storey mixed-use building at Bank and Cooper streets that was recently put up for sale as an example.
Morin, who is marketing the building at 263 Bank St. on behalf of the current owners, said the 30,000-square-foot structure was “substantially upgraded” since the current owners purchased it in 2012 and remains a viable asset in its current state.
But he also said the building would be “ideally suited to a residential conversion” down the road, adding a new buyer might “look at ground-up development in the long term” should it suit their needs.
Fleming said government incentives aimed at spurring more rental housing construction, such as the federal government’s 2023 move to unlock $20 billion in additional low-cost financing for new apartments, senior residences and student housing, could make demolitions a more attractive option for developers.
“It made a lot of these types of decisions easier,” he explained. “It de-risks it. The combination of lower-risk mortgage financing and political will to get more apartments built is strong. I think there are going to be some folks with older buildings taking long, hard looks at them.”
In an interview with OBJ last week, Arseneau said he hopes Groupe Mach is just the first of many developers that are willing to tear down the old with the aim of creating a revitalized urban core that attracts a new generation of residents.
“Ottawa is conservative, so it’ll be like a rain just starting. I don’t think it’ll be a downpour,” he said of the likelihood of more demolitions happening soon.
“Conversions (take) two to three years to occur and starting from scratch can be a little bit longer than that. So it’s going to require some patience. They’re on the right path now, and I hope that in about five years, we see a much more vibrant downtown Ottawa beginning.” 
