Office buildings turn to apartments, bring downtown Calgary back to life

If there are no companies willing to move into Calgary's empty office towers, real estate developers Strategic Group are betting people will.

That's the thinking behind the developer's decision to reconfigure some of its office buildings in Calgary and Edmonton as rental apartments, rather than fighting the headwinds of persistently high office vacancy rates.

One of those is the Barron Building, a historic building on Stephen Avenue that was Calgary's first skyscraper and the home of some of its first oil and gas giants when it was completed in 1951.

"I love the building," said Strategic Group president Randy Ferguson, in a Monday interview with Calgary Eyeopener host David Gray.

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The building is 11 stories tall with a single residential unit: a penthouse apartment that once belonged to J.B. Barron.

The plan was to keep it that way when Strategic Group bought it, but then the oil crash happened, said Ferguson.

"We put a redevelopment plan together that we worked on since 2012 to convert the building — double the floor plate — into an office building while still respecting the architectural characteristics of the building," Ferguson said.

"Unfortunately," he added, "our plan was completed and permitted in 2015 where things came to a little bit of a stop in the office industry."

Now the interior is being reconfigured into residential units, with an expected opening in 2020.

Departing tenants

That same phenomenon came into play a few years ago, when Alberta Health Services announced it wasn't renewing its lease at another Strategic Group building, known as the Cube, on 11th Avenue S.W., across from the Midtown Co-Op.

Rather than trying to find a new tenant to replace their departing one, the company decided to repurpose the building as apartments.

Ferguson said the combination of design and location made it an appealing candidate.

"We looked at the building over what might happen in the next 10 to 15 years as an office building," Ferguson said, "and we looked at our costs and our returns on converting it to residential — and due to the location and the physical structure of the building, it was ideal for repurposing."

The building contains 67 suites. Ferguson described it as "more of a jewel box type building" than a lot of the high rise style apartments downtown, which distinguishes it from them, and as the thinking goes, appeals to a different sort of demographic.

"There is a big propensity and a big demand for purpose-built rentals in the city of Calgary today," Ferguson said.

"That could mean singles, it could mean empty nesters. It could mean new citizens moving into the city and even into the country."

The Cube is still under construction on its exterior, but has people living in it already.

"We're particularly proud of the Cube," Ferguson said, "because it's the first repurposing project that we're delivering into the two big markets in Alberta."

Demographically desirable

Strategic is also converting several office buildings in Edmonton into residential towers, for the same reason they're doing it in Calgary: older stock offices can't compete with new office buildings in a shrinking office demand economy.

But, Gray asked, what about the condo gluts that exist in both cities?

Ferguson suggested that there's room for rental units, particularly when compared with aging rental stock in both cities.

"The two youngest cities by a demographic in the country are Calgary and Edmonton and a young population," Ferguson said. "Remember, our average age is 35, and a young population has a greater propensity to rent than to buy.

"The second leading economic indicator is the fact that our rental inventories in the two big cities in Alberta, greater than 50 percent of that inventory was built prior to 1976 — so there's tranches of inventory every year that are becoming functionally obsolete."

Change downtown

It's not cheap to convert office buildings into residential units. The Barron Building conversion will cost $44M, while the Cube's is around $24.5M — but Ferguson said it beats the alternative.

Will it change downtown Calgary?

Could a ghost town transform into something resembling a community?

"It can absolutely change," Ferguson said.

With files from The Calgary Eyeopener