Downtown London's commercial vacancy is 25 per cent, with few easy or cheap solutions, report says

A city staff report pegs downtown London's commercial vacancy rate at 24.6 per cent while suggesting the city look at a  handful of solutions, some that would require the co-operation of property owners and others with a hefty price tag. 

Released this week, the Core Area Land and Building Vacancy Reduction Strategy flags a number of factors hindering the overall economic vibrancy of London's downtown. 

It also confirms what many Londoners have long suspected — that "highly concentrated" ownership in the city's downtown buildings is a problem. 

Farhi Holdings Corporation, owned by landowner Shmuel Farhi, owns 59 per cent of the vacant properties downtown, all of them older and some needing to be redeveloped to be functional. 

Council called for the report last summer, with London's downtown struggling to rebound from the COVID-19 shutdowns and many companies opting to keep employees working from home. 

City staff were asked to deliver a comprehensive look at downtown buildings, assessing how many are vacant while proposing ways to shift empty properties back into use 

• Read the full staff report here

Here's a breakdown of some of the factors highlighted in the 67-page report, which you can read here:

• High vacancy rate: The overall commercial office vacancy rate for downtown is at 24.6 per cent. The rate improved only by six per cent in the third quarter of 2022 compared to the height of the COVID-19 pandemic in 2019.
   
• Older commercial building stock: In the world of commercial real estate, office buildings are classified as 'A,' 'B' or 'C' properties. Buildings with an 'A' rating are in the best locations with the most updated amenities, such as One London Place. Buildings with a 'C' rating are older and often need to be redeveloped to attract tenants. London has a higher proportion of Class B and Class C space than most major downtowns. "There is a sense of urgency because these buildings will continue to erode if they are not improved," the report says. 
   
• Concentration of ownership: The report points to "highly concentred" ownership in London's vacant downtown buildings. Across all three classes of commercial space one owner, Farhi Holdings Corporation, owns 59 per cent of the properties. Farhi doesn't own any 'A' rated commercial buildings. CBC News reached out to Farhi Holdings for comment but did not receive a reply.
   
• Properties with no buildings and surface parking lots: There are 13 vacant land parcels in the core and 67 surface parking lots, according to the report. "Combined, these vacant land parcels total 29.32 acres, an amount of territory roughly equal to six city blocks of the size occupied by Budweiser Gardens," the report says.
   
• Ground floor retail vacancies: The report says London's "sidewalk-facing" retail space has an 18 per cent vacancy rate. In Old East Village 24 per cent of these commercial spaces are vacant, and almost all of those vacancies are in 'B' and 'C' rated buildings.

The report warns London's vacancy problem could easily get worse without investment in its stock of downtown buildings.

"Without vacant commercial properties being renovated, adapted, or transformed, vacancy levels will continue to increase," the report says.

The report recommends some measures the city could take address these problems, however, many of them come with significant budget impacts.  

Proposed solutions

Office conversions:

With a residential vacancy rate of less than two per cent, office conversions are flagged in the report as a potential part of the solution. It's also something Mayor Josh Morgan directed staff to look into earlier this year. The report is supportive of incentives for conversions and studying their viability but also says it's not a quick or easy solution. One study of 28 downtown Calgary buildings found less than a third were viable conversion candidates.

Coun. David Ferriera, whose Ward 13 includes most of the downtown core, sees the report as a "first step" providing essential information the city needs to tackle the problem. 

He said despite the challenges, converting office space to residential needs a close look. 

"We have a housing crisis, we have a very low residential vacancy rate but a very high commercial vacancy so if we can  utilize the commercial side to help with our residential issues, I feel like this would be a smart approach," said Ferreira.

The report says five buildings have been approved for conversion in Calgary, removing 665,000 square feet of vacant office space and creating 707 residential units. However, achieving that required almost $50 million in municipal investment.

Property acquisition:

The report calls on the city to "acquire core area vacant lands and surface parking lots where they may implement municipal strategic priorities." It doesn't spell out exactly how those properties would be acquired or if the city should take more aggressive steps to spur property owners to do something with vacant properties. 

To get more people into the core, the report recommends a head lease program for new commercial tenants and warns city officials to take care when locating the hub locations expected to be part of the city's homelessness strategy.

The report will be discussed at Tuesday's meeting of city council's strategic priorities and policy committee meeting.