Real estate developers say regulations are holding back efforts to convert empty Toronto office buildings into much-needed housing – but some candidates in the ongoing mayoral election, as well as the city itself, appear open to discussing policy changes.
The idea of converting office spaces into residential units picked up steam since the pandemic-induced shift to hybrid work. Recent reports suggest office occupancy rates in Canada may not bounce back to pre-2020 levels given the rise of hybrid work, and RE/MAX Canada has suggested cities take a hard look at converting offices into housing.
Some cities like Calgary are moving ahead with turning empty offices into apartments. But as it stands, office space in downtown Toronto neighbourhoods must be replaced if it is removed, creating a major barrier for such projects to move ahead in Canada’s largest city.
Jeff Hull, president of Hullmark, a real estate and development company, said his firm is keen to move into office-to-residential conversions. He considers it a way to boost affordable housing supply in a city that desperately needs it, and sees the appeal of sustainability arguments for the practice – that it’s more climate-friendly from an emissions point of view to reuse a building, rather than tear it down and construct a new one.
“We're very much interested in seeing how we can play a part in creating more housing supply through the conversion of office,” Hull told BNNBloomberg.ca in a telephone interview. “The main challenge is changing the regulatory framework.”
Hullmark already has several office properties, themselves conversions from old industrial buildings, which Hull said might work as residential buildings. The company has also looked at buying some other office properties to convert, Hull said, but regulations such as the office replacement rule have stopped them from taking the plunge.
Architect Duanne Render, whose firm Gensler has worked extensively on office conversions, said mainstream discussion of the office-to-residential idea has been a noteworthy change from three years ago, when he and colleagues would have been “laughed out of people’s offices bringing it up.”
Despite growing interest in making it work, the process is not without challenges, he said, and not all office buildings are good candidates.
Purpose-built offices have different floorplan and layout needs than apartment buildings, making some conversions less feasible. The projects are also costly, and generally need some kind of financial assistance to incentivize developers, like in Calgary where the city offered subsidies to support conversions in its waning downtown core.
Market dynamics can also help make the economic case for conversions, Render noted. In Toronto, where rents are particularly high, he said the math might work out for more developers to jump in to the space.
“Toronto is quite ripe to be able to support quite a few candidates,” he said.
Still, rules barring the removal of commercial office space are a major barrier, Render noted. But with housing a major mayoral election issue and growing developer interest, he predicts conversions will eventually take off in the city.
CITY CONSULTATIONS AND ONGOING PROJECTS
Gregg Lintern, chief planner at the City of Toronto, told BNNBloomberg.ca in an email that “increasing office vacancies resulting from the adoption of hybrid work models is an issue impacting cities across North America, including Toronto.”
The city is running a study on office market conditions that will look at the “benefits and risks” of converting office space for other purposes, and look at policy options “that balance office needs in the short and long term and ensure the City’s economic role remains competitive and resilient,” Lintern said.
In the meantime, there is an application before the city that would convert and build onto an exiting 15-storey heritage office building, turning it into a mixed-use retail and residential tower with more than 100 apartment units.
Matthew Kingston, executive vice-president of development and construction at H&R REIT, the company behind the proposed project, said talks are ongoing with the city to “find common ground” when it comes to the office retention policy.
“The challenge for us, is that the heritage retention and enhancement are so costly, that we are unable to make financial sense of our project if we replace the office fully,” Kingston said in an email to BNNBloomberg.ca
“That being said, city staff have been very open in dialogue with us and have proposed numerous options for us to consider. We are hopeful that we can work with them to find a mutually acceptable resolution.”
WHAT DO THE MAYORAL CANDIDATES SAY?
Some frontrunners in the upcoming mayoral vote set for June 26 have also weighed in on the issue, and promised to loosen regulations if elected.
Candidate Brad Bradford has promised to change zoning rules to make it easier to convert offices into homes. If elected, Bradford said he would eliminate the rule requiring office spaces be replaced foot-for-foot if the proposed development includes 20 per cent affordable housing.
He also promised to “ensure relief from guidelines and other rules that make it difficult to convert office floor plates into housing,” and as-of-right approvals for conversions that wouldn’t add on to a building, in a bid to speed up the zoning process.
Ana Bailão’s campaign said in an email that if elected, she would “reduce office replacement requirements when buildings are demolished or converted in exchange for affordable housing” as part of her plan to build 285,000 new homes.
Olivia Chow’s campaign said she is “open to exploring how we can animate unused office buildings, including converting some to housing and other uses, but it should be part of the broader conversation on how best the city can support recovery in Toronto’s downtown core,” among other models.
Anthony Furey said he would “100 per cent support” making it easier to flip offices to residential units with zoning rule changes, though he doesn’t consider it a primary solution for the city’s housing shortage.
Hullmark developer Hull said he’d like to see flexibility and a “really permissive policy environment” when it comes to office conversions, “acknowledging the fact that these are going to be hard and cost a lot of money” – but he’s not deterred by the roadblocks currently in his way.
“I like solving complex problems that end up being, I think, potentially really positive things for the future of the city,” he said.