Real estate firm Avison Young says 286 properties in the nation’s capital meet two key criteria that may make them suitable to be turned into rental apartments or other forms of housing.
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Nearly 300 office buildings in Ottawa are potential candidates to be converted into other uses such as housing, according to new research from Avison Young.
The commercial real estate firm says 286 properties in the nation’s capital meet two key criteria for “adaptive reuse” as rental apartments or other forms of housing. The buildings represent about 16.1 million square feet of real estate, or roughly 38 per cent of Ottawa’s total office footprint.
Amid a widespread shift to remote work during the pandemic that has prompted many tenants to reassess their office needs, Avison Young looked at thousands of buildings across Canada to determine which ones would be the best bets to get new life as residential towers.
The firm said that, ideally, such buildings should have floorplates of less than 15,000 square feet – anything larger makes it difficult to design apartments with sufficient natural light – and date from before 1990, meaning it’s less economical to upgrade them to modern energy-efficiency and air-quality standards for office spaces.
Of the six cities Avison Young surveyed, Ottawa has the second-fewest properties that meet those criteria, behind Toronto (923), Montreal (611), Vancouver (548) and Calgary (521). Only Edmonton, at 208, has fewer.
“As the market shifts and as buildings get tired, there’s an opportunity for asset owners to reimagine what’s possible,” Scott Pickles, Avison Young’s senior vice-president for consulting services in Canada, told OBJ on Monday.
The pandemic has upended the commercial real estate industry, company executives explained, opening up swathes of space across the country and accelerating the “flight to quality” that’s hollowed out aging B- and C-class buildings.
In the fourth quarter of 2022, top-tier buildings in Ottawa’s downtown core had a vacancy rate of 6.7 per cent, according to Colliers International. Meanwhile, the vacancy rate for class-B buildings was nearly three times higher, at 18.4 per cent, while the rate for class-C buildings was a whopping 20.2 per cent.
Michael Church, managing director of Avison Young’s Ottawa office, said as tenants flock to newer buildings with better air quality and more amenities, older office towers that need expensive upgrades are being left behind.
That’s particularly true in Ottawa, where much of the downtown office inventory was constructed more than four decades ago.
Church said landlords and property owners are now faced with tough decisions about what to do with buildings that are becoming less and less attractive to office tenants.
Turning them into apartments, seniors’ residences and other forms of housing could be one option, he explained.
“We have a lot of stuff built in the early and late ’70s and it’s time for a relook,” Church said. “I think that’s really what’s driving this thing.”
Sheila Botting, Avison Young’s Toronto-based president of professional services for the Americas, said repurposing commercial real estate could be key to revitalizing urban centres that have turned into ghost towns in the absence of office workers.
Botting said she believes replacing office buildings that have passed their best-before dates with a “mix of uses” that includes residential will help re-energize flagging Canadian downtowns and turn them into “24-7” places where people will congregate day and night.
“We’re really seeing that transformation opportunity across Canada and North America,” she said.
Still, the executives hasten to add that just because buildings meet the company’s two main criteria doesn’t mean they’re can’t-miss candidates for residential conversions. Such projects are expensive – in many cases, nearly as costly as building from scratch – and need to make financial sense for developers to justify that expense, Pickles notes.
“You’re not just going to convert something because it can be technically converted,” he said. “It’s really that market analysis, feasibility side of it. Do people want to come live in that area where that building is located? Are there amenities? Place is important; demographics are important.”
Church and Botting agree.
“There have been a couple of examples (of conversions) that are actually happening here and I think there will be more of that at some point, but … it’s not just the asset,” Church said. “All the other boxes have to get ticked, too.”
“Some of the properties, (it) might be better just to knock it down and put up something new,” Botting added. “It depends on the asset and where it is.”
Still, Avison Young officials say major Canadian cities, including Ottawa, are likely to see more conversions in the coming years as growing numbers of commercial buildings outlive their usefulness as offices.
According to the firm’s data, up to 30 per cent of the country’s office towers – or more than 3,000 buildings – could be conversion candidates based on their age and floorplate sizes.
“It has grabbed our attention as a country,” Pickles said, adding the firm gets inquiries about potential conversions nearly every day. “The benefits (of conversions) are endless.”
