With post-pandemic office vacancies in Toronto reaching the highest level since 1995 as the city faces an ongoing housing crisis, the idea of converting empty workplaces into apartments is gaining attention. A recent study by real estate services company Avison Young found that around 900 office buildings in Toronto show potential for conversion into residential space. Conversion projects are already underway in cities such as New York — but is it a viable solution in Toronto?
“It’s super niche because there are just so many factors that go into it,” explains Jeremiah Shamess, senior vice president of Colliers International, of office-to-residential conversions. “Every single building is a puzzle, and you have to look at it as a bespoke design challenge every single time, so that’s the biggest problem — it’s a lot of work,” says Shamess, who leads Colliers’ private capital investment group.
The major challenges include municipal policy that discourages lands designated for employment from switching to residential, the size and shape of office floor plates (which represent a building’s footprint), and the amount of work required to actually pull off the retrofit, says Shamess. “If the cost to convert is over $200-$300 a square foot, then it’s not going to make sense,” he says. “Everyone likes to talk about it, but until the numbers make sense, it won’t happen.”
Raymond Wong, vice president of data solutions at global real estate consultancy Altus Group, agrees that making the numbers work is the key. “You’re looking at anywhere from $375 to $425-$450 a square foot to convert a building, and that’s based on a general cost,” he says. “You don’t know until you peel back the walls and see what you actually get. The demand is there for rentals, but just to make it work…that’s a bit of a challenge.”
Research suggests there may nonetheless be potential for hundreds of conversions — but that’s only a fraction of the office buildings in the Greater Toronto Area. The Avison Young study found that, across 14 big North American cities, 34 per cent show promise as potential conversion candidates.
Last month, the company identified possible candidates for so-called adaptive reuse by targeting buildings with floor plates of no more than 15,000 square feet and that were built before 1990. Buildings that have too big a footprint can make it tough to create reasonable floor plans with enough natural light, for example, leaving units that are too long and narrow. “Nobody wants to live in a bowling alley,” says Scott Pickles, principal and senior vice-president for consulting services in Canada at Avison Young. Older buildings, on the other hand, are likely to have higher vacancy rates than newer, more desirable and higher-class assets, therefore providing incentive for land owners to consider a change.
Looking at Toronto, in particular, Pickles and Sheila Botting, president of Americas professional services at Avison Young, found about 30 per cent of the office inventory (or 923 buildings) showed promise. “We’re not saying a third can be converted — that’s not our premise,” says Botting. “Our premise is: take a look at the third, take a look at vacancies in the buildings, the cash flows, the tenants, when they’re going to turn over, and [ask] is there an opportunity — within that population, within that market — to then convert some of those into residential?” she says. In reality, Botting figures about half of the 923 buildings could work.
Gensler, a design and architecture firm that has worked on conversion projects around North America, provides a similar estimate. “Looking at Toronto, we have analyzed around 70 buildings, and out of that subset probably about 20 per cent work physically from an architectural point of view,” Duanne Render, senior associate at Gensler, says.
Rental or sale prices, construction costs and property values could all further reduce the number of viable properties, he adds. Mechanical systems are another possible complication. “When you’re converting a building, you need brand new plumbing, pretty much throughout the whole building,” says Render.
Even if an underused office building can’t become apartments, Render notes there are other possibilities that are worthwhile to explore. “It doesn’t just stop at converting to residential,” he says, suggesting office buildings can be repositioned to educational facilities or labs. “It opens up a whole different discussion around possibilities for other things.”
Despite the challenges with turning office space into apartments, Wong says that it’s still important to look at which office buildings could yield successful conversions. “Every little bit helps,” he says of increasing the city’s housing stock. “You need brand new housing — be it townhomes, apartments, single-family — and we’re just not building enough. I think conversion for some of these projects will help, but it’s not a total solution.”
