Calgary revives office conversion program with $52.5 million in new funding

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Calgary’s office-to-residential conversion program is being revived by city hall nearly a year after it was paused when the city allocated all of its $153-million budget in the program’s first iteration.

The new round of funding sets aside $52.5 million to lure developers to undertake the expensive and burdensome process of flipping office buildings into multi-unit residential properties.

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The renewed efforts come as Calgary’s downtown office space continues to show slight recovery from the doldrums earlier in the decade when large parts of the core hollowed out, with office vacancies peaking at 33.2 per cent in 2021. The city’s efforts, which began that year, gained attention across borders as a unique solution for cities whose downtown areas were suffering from chronic vacancies.

The new Downtown Development Incentive Program grants $75 per square foot to developers, with a maximum of $15 million per property once the projects are complete. New applications opened Thursday and will be open until Oct. 31.

Given those figures, at least three projects will be supported by the new funding.

Calgary Mayor Jyoti Gondek said in a statement that conversion “is not only a practical solution but a transformative one.”

Rising construction costs could pose problems

The announcement comes at a challenging time for the construction sector. The Barron Building conversion, a project the city has committed $8.5 million to supporting, paused construction earlier this year due to what Strategic Group CEO Riaz Mamdani characterized as complexities that have wrought havoc on the construction process. The cost of the project had doubled as of mid-August, he said. 

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The city does not release funding to the selected projects until construction is complete. The city’s commitment to the Barron Building conversion preceded the Downtown Development Incentive Program’s creation.

Skyrocketing construction costs, particularly for materials such as concrete and steel, which are critical to highrise construction projects, could hold back conversion developers from crossing the finish line on time and on budget, Greg Kwong, Alberta region managing director at CBRE, told Postmedia in April.

While the cost-per-square-foot has remained the same from the previous round, market conditions for materials necessary for construction have dramatically increased in the three years since the program was first unveiled.

“That 75 bucks a foot — you’d probably have to double it to make sense,” Kwong said at the time. The potential complications during construction that often occur during conversions also increase the risk.

Only one project under the program’s first iteration — the 112-unit Cornerstone development — has finished and opened.

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The previous iteration of the program has so far supported 13 projects with four more under review. Thursday’s release and a social media post by Gondek said the city had approved 11 projects. The city told Postmedia it had changed how it publicly reports its office conversion statistics.

After hitting 30.2 per cent vacancy rate in 2023 — still the highest in Canada — downtown office vacancies were projected in February to hit 27.9 per cent, according to CBRE. In 2014, downtown vacancies sat at just 9.8 per cent.

mscace@postmedia.com
X: @mattscace67

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