Could empty London office buildings convert to residential? They're doing it in Calgary

In a bid to turn London's empty downtown office buildings into apartments and condos, Mayor Josh Morgan wants city staff to look west for inspiration.

During his state of the city address on Tuesday, Morgan said he's asked staff to take a look at a model used by the City of Calgary. It's an incentive program that subsidizes office-to-residential conversions by developers as a way to bring vibrancy back to the core.

"We've seen this work elsewhere in Canada," he said. "There's no reason why it can't work in London."

In Calgary's incentive program, the city started with a $45-million pool of city money to subsidize developers' office-to-residential conversions. Each project was subsidized at a rate of $75 per square foot with a cap of $10 million per property. 

The program has so far created five office-to-residential conversions and added 700 new residential units to the downtown core. Three others projects are in the final stages of approval and more are expected this year with the city fund now up to $153 million. 

Natalie Marchut is with the City of Calgary's downtown strategy business unit. She said the project began in 2015 when a decline in the oil and gas industry pushed downtown office vacancy rates to a staggering 33 per cent. 

"We weren't seeing any new absorption of office space, so the vacancy rate just kept climbing and climbing," she said. "It was evident that something needed to be done from the city side to create an incentive for owners to do something different with their buildings."

In one Calgary project called The Cornerstone, the developer received $7.8 million toward a $38-million conversion of a 10-storey office building that had sat largely empty for a decade.

Due for occupancy in December, the building will add 112 apartments to the core. The first two floors will have 60 new office spaces. 

Maxim Olshevsky is managing director of Peoplefirst Developments, the company overseeing The Cornerstone conversion. He said without the incentive program, the conversion costs would make the project impossible. 

"Everybody is starting to realize that office buildings in downtown centres are not really going to be the same," he said. "Our way of thinking and doing things needs to evolve, just like workplaces are evolving, just like companies are requiring less office space, there's more flexibility in where and how you work. This will affect downtown cores in all cities."

Marchut said the incentive program doesn't work for every project. Some Calgary developers couldn't make their project budgets work even with the subsidy factored in. The new residential units from the incentive program haven't yet been added to the city inventory but Marchut said she expects the city has removed about a million square feet in vacant office space already, which is exactly what Morgan says London has.

But can such a model be scaled for London, a city with a population about one-third the size of Calgary's? 

Morgan believes it's worth investigating.

"Those landowners sitting on vacant office space, I have to imagine they want to convert that into something that is productive for them," said Morgan. "If that takes a little bit of government leverage and support to get them over the top ... that's a win-win in my mind." 

Farhi weighs in

London's largest downtown land owner Shmuel Farhi told CBC News in a statement that he supports converting vacant commercial spaces into residential units, but said each project has to be considered carefully.

"In terms of challenges, many commercial properties do not meet the stringent requirements (i.e. building codes, fire codes, etc.) for residential use nor meet residential property standard bylaws," he said. 

Farhi said other factors, such as last year's sharp increase in interest rates, must also be considered. 

"The socio-economic realities facing the downtown also presents challenges for the feasibility of any residential project," said Farhi. "We've been urging the City in this strategic direction for years and are glad to see Mayor Josh Morgan prioritize this."

Morgan said he has met with Farhi's team since his election in October, and feels there's plenty of common ground. 

"There's a million square feet of vacant office space downtown there's lots of options to choose from here," he said.

The City of London is doing a core area vacancy study, which will report to a council committee later this year. It will help identify buildings for potential conversions.