As the largest metropolitan cities in North America continue to face the dual problems of uncertainty around office assets and a shortage of housing, more of them are taking a serious look at office-to-residential conversions, with the City of Toronto set to be the latest to do so.
Earlier this month, Councillor Brad Bradford introduced a motion to the City's Planning and Housing Committee asking the City to begin studying office conversions and what would be required to replace excess office space with affordable housing.
"As of September 2023, occupancy rates within the downtown core remain at ~50% of pre-pandemic levels," Bradford said. "While some employers are mandating a return to work, others are embracing hybrid and work-from-home policies. Given the changing nature of work and the ongoing housing crisis, it is time to reevaluate the need for office space. The City of Toronto must remove barriers to the creation of new housing at every opportunity. That includes making it easier — where possible — to convert older office buildings into housing."
Last week, the Planning and Housing Committee carried Bradford's motion, along with two amendments that would see the City specifically review Calgary's office conversion incentive program — officially called the Downtown Development Incentive Program — as well as formally request that the Government of Canada create a federal grant program to support office conversions. (The Government of Canada's Rapid Housing Initiative allows funding for conversions, but is rarely used for conversions.)
The Planning and Housing Committee will now bring these recommendations to Council, which will make a decision on Wednesday, November 8. If approved, findings and further recommendations are expected to be revealed in Q3 2024 as part of the Office Space Needs Study that's already ongoing.
The State of Office Conversions
Toronto's decision to explore office conversions comes at a time when interest in office conversions is as high as it has ever been — in Canada and beyond.
Just last week, the Biden-Harris administration announced new actions to support American converting offices — also sometimes referred to as "adaptive reuse." Those actions will include "new financing, technical assistance, and sale of federal properties," which will "create much-needed housing that is affordable, energy efficient, near transit and good jobs, and reduce greenhouse gas emissions," the White House said.
In Canada, Edmonton spent this past summer working towards establishing their own program to incentivize office conversions in response to office vacancies in their downtown core which is now the second-highest in the country, after Calgary.
Calgary has inarguably been the leader when it comes to adaptive reuse, both in Canada and the United States, with many governments — and now Toronto — pointing to Calgary's incentive program as a model to follow. Calgary did not invent the concept of converting office buildings into apartment buildings, but its incentive program has become a proof of concept that office conversions can be done en masse.
Calgary's incentive program provides $75 per sq. ft of office space that's converted, with 10 projects currently underway and seven more to be announced soon. Uptake of the program has been so popular that the City recently stopped accepting applications, temporarily, while it looks for further funding for the program.
Although office conversions cost significantly less than the demolition-construction route, there are also costs associated with conversions that are not seen with regular non-conversion projects, as well as a bit more risk. Developers in various markets around the country have said that office conversions do not make much sense without some financial assistance.
For cities, office conversions help solve multiple problems at once: removing excess office space and creating more housing. Furthermore, conversion projects typically create less waste due to less demolition, and housing that's created through conversions is usually delivered much faster than new projects — two results few people would argue against.