Repurposing Vacant Office Buildings
At the TCN Fall conference in Calgary Canada, Scott Hutcheson of Aspen Properties, Iain McCorkindale of M3 Development, and Maxim Olshevsky of Astra Group, led a great panel discussion, Office: Residential Conversions (ORCs).
In 2015, there was a sharp decline in oil and gas prices which rapidly lifted Calgary’s office market vacancy rate from 3% to 30%. As a consequence, the city council experienced a large reduction in property tax collection.
For years, building owners and developers lobbied the city council. The council realised that the market was not going to bounce back and decided to provide a contribution of $75 per square foot (~$800 per square metre) to encourage parties to convert vacant office buildings.
The panellists shared their trials and tribulations of repurposing older vacant office buildings and today Calgary has a thriving ORC sector. The conversions are not restricted to residential.
Aspen upgraded Sun Life Plaza (early 1980’s) into a thriving, downtown, amenity-focused office complex now called Ampersand. Following the panel discussion, we inspected the complex and it is one of the best transformations we have seen. The focus on amenity stood out and one of the best concepts is that any tenant in an Aspen building can use the amenities in Ampersand. This means Aspen does not have to provide expensive amenities in every building; just in one centrally located building. In essence, this ensures that the rents are still competitive and not having to carry the extra cost of so much amenity.
Astra Group is onto its 6th conversion, proving it can be done on scale.
Of course, economics plays a huge role. Conversions are very difficult and expensive, and the buildings need certain attributes for conversion to be successful. Not every old building can be converted. Most importantly values have to be real for the buildings to be purchased in the first place.
Conversion may not work in some Australian CBD office markets. However, we don’t see why they wouldn’t work in Melbourne, East Perth, or non-CBD markets like St Kilda Road or even Macquarie Park. As Maxim from Astra noted, they are possible when you focus on cost, efficiency and speed to market.
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