Although Edmonton’s office vacancy rate is coming down, discussions of office-to-redevelopment continue to crop up as alternative uses for old buildings.

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While national office vacancy rates continue to climb, Edmonton mounted a slight comeback in the first quarter, bucking the trend by a modest 0.6 per cent and showing glimmers of hope for the office real estate market.

“Assuming that activity carries forward from Q1 of this year, I think we’ll see some really good activity and momentum primarily in high quality buildings with strong offerings,” said Taylor Riar, associate vice-president of Colliers Edmonton,  on a panel at a NAIOP Commercial Real Estate Development Association luncheon on April 10.

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While discussions of office vacancy in downtown cores continue to rage, Edmonton and a handful of other Canadian cities are showing signs of pushback. Office rental absorption showed some positive movement in the first quarter, but mostly in buildings of a certain standard, leaving questions of what to do with the rest. As renters flock to newer buildings, a trend referred to as the “flight to quality,” it leaves an empty space in older buildings fuelling questions of office-to-residence redevelopment.

Edmonton currently has an office vacancy rate of 22.3 per cent and 19 per cent in downtown and the suburbs, respectively, making for an overall vacancy of 21.1 per cent, said a first quarter report from CBRE Canada: Commercial Real Estate Services. In contrast, the national average rose to 18.4 per cent. So, although Edmonton’s average isn’t great, it’s moving in the right direction when compared to the national average and it also could be worse.

For its part, Calgary finished the first quarter with an average of 28 per cent vacancy, comprised of 30.3 per cent downtown and 24.4 per cent in the suburbs.

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The report also pointed to fewer new office building construction in Canada during the past quarter. For the first time since 2018, there were no new builds started in the first quarter across the country, which is expected to continue throughout the year.

With better absorption in higher quality buildings, and no new buildings set to open anytime soon, the issue plaguing Edmonton’s central core is what to do  with existing office buildings that no longer make the quality cut?

An Avison Young report in March acknowledged that development in Edmonton (and much of Alberta) traditionally followed the trajectory of the oil and gas sector. When oil prices and production were up, so too was development. As such, the report claimed that more than half of Edmonton’s buildings were constructed around the 1990s, suggesting that significant portions of the older buildings were vacated during the ongoing flight to quality trend.

Out with the old for businesses could mean into the old for residents.

One solution that crops up frequently across the country for ways to use older, more vacant, buildings is office-to-residence redevelopment.

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“Office conversion projects have continued into 2024 with 870,000 square feet coming out of competitive inventory in the first quarter. The average vintage of these buildings was 1985,” said CBRE in its report.

More than half of all office conversion projects across Canada were converted to residences. Riar said why he thinks redevelopment into residences could help the central core, including reducing office vacancies.

“People want to work close to where they live. If you can drive the population of your resident base up, you’ll naturally have more people that are OK working downtown, which helps that whole market,” he said.

One of Riar’s fellow panelists at the NAIOP luncheon pointed to how redevelopment could help retail real estate markets Downtown.

“I mean it’s cart before the horse, right? Do you bring the people first or do you bring the services first? But as soon as people are here, then we can justify having more services here,” said Alison Hansen-Carlson, associate director at Avison Young.

Hansen-Carlson said retailers need strong evidence of traffic before taking the risk on developing a space. After the mass exodus from Edmonton City Centre mall, she said that gone are the days when a retailer might simply trust a gut feeling. With developments in technology, retailers examining prospective locations can measure the foot traffic, and she said they’re likely to have their own internal number that must be hit before moving forward.

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Riar also touched on the importance of foot traffic for helping make Downtown safer.

“As you increase the population base, what it also does is it helps us combat issues surrounding safety in the core. That’s a huge point that tenants consider when selecting their space,” said Riar.

Riar acknowledged redevelopment is no silver bullet for the hurdles facing Downtown revitalization. But whether it’s helping fill office vacancy, providing more housing, creating more opportunity for new businesses, the redevelopment from office-to-residential seems from the outset to be an attractive pursuit.

So what’s the issue? It’s expensive, which is why some developers went to Edmonton’s city council to ask for municipal financial support to get started.

Council defeated the motion for an incentive program, citing a shortage of money available and the need to use public money for public interests, and not private, which was effectively summed up by Ward papastew Coun. Michael Janz.

“We have to say no at some point. We’ve looked under every rock, we’ve tried to figure out how to do this, but without raising the tax levy, without cutting into the housing accelerator fund, without adjusting the CRL (community revitalization levy), we don’t have any pot of gold,” Janz said.

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Contrary to what some of the councillors argued, Riar said that he believe the program shouldn’t be viewed as a handout to private interests.

“It’s not just a handout to developers, it has to be seen as an investment in the core and revitalizing the core,” said Riar, adding “these developers are still taking on a huge amount of risk.”

Recently, Calgary was in the spotlight for its developmental support to help leverage private funding. The program was put on pause in October 2023 because of the high volume of interest.

The 17 projects that applied for the fund quickly bumped up against the $153 million threshold, which forced the city to close the applications. The $153 million attracted $567 million from private investors in the projects and, if all of them come together, they could introduce more than 2,000 residences in the downtown area.

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