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April 11, 2023

Repurposing Commercial Real Estate Assets in a New World of Work #RethinkTheNews

Policymakers in Calgary are going full steam ahead with plans to convert office space in their city to alternate uses. Meanwhile, city officials in Vancouver are standing pat. What are the costs and benefits? What are the property tax implications?

City officials around North America are grappling with the fallout from the pandemic, specifically, how to manage a glut of vacant office space within their downtown cores. Some cities are holding the line and maintaining their inventory. Other jurisdictions are making bold plans to completely repurpose large swaths of space. The Western Canadian cities of Vancouver and Calgary provide an example of how two cities are taking two very different approaches.

A recent article appearing in The Globe and Mail described what could rightfully be categorized as a tale of two cities. One, Vancouver, has decided not to cede even one square foot of office space to alternate uses (such as residential, hotels, education, or performing arts venues), out of fear that it will crowd out office space. Put another way, Vancouver is taking a wait-and-see approach.

On the other hand, Calgary is looking to act early and completely convert six million square feet of space to other non-office uses, like those described above. A specific catalyst is behind their decision to convert office space for other uses. Given that Calgary’s economy has relied heavily on the Oil & Gas Industry, most office space in the city was built to support this industry.

With long-term prognosticators now talking about the long-term decline in the sector, city planners are metaphorically pushing the eject button. Economic and occupancy circumstances are forcing planners to become creative and look to convert assets to other uses. To kick-start the effort, Calgary is providing incentives for developers to take the lead in conversion initiatives, and major projects have already commenced.

These conversion projects do not include downtown A-class office space. Rather, the targets are B- and C- class assets, including what was once the SNC Lavalin Tower that had sat vacant for the past number of years. As a refresher on building classes, check out a recent piece on our blog.

On the flip side, Vancouver provides a textbook example of the old adage “once bitten, twice shy”, as they previously embarked on a similar program in 1986, when they hosted Expo ’86, and converted some assets to residential use. The net effect was to eliminate prime office space. Unlike Calgary, Vancouver’s economy does not heavily depend on one industry (especially not one as susceptible to pronounced periods of boom and bust like as Oil & Gas).

The use of office space is dynamic, and ever-changing. As a society, we are still in the early stages of emerging from a pandemic. Calgary’s aggressive decision for change can be understood from the perspective of its reliance on one industry; however, there’s a cautionary tale to this too as cities across the world have continually created innovative ways to reposition themselves and attract new industries.

Could this be a case of prematurely throwing in the towel, or does it show boldness and initiative? Regardless of the results, developers and city planners are not sitting idly and being reactive in their approach.  

In the context of property taxes, it should be noted that given the spread in rates between residential and non-residential assets in Canada, there will certainly be property tax implications of policy change on this degree of magnitude. itamlink is built to rationalize a number of scenarios and give order to the Property Tax and Appeals Process.

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© 2023 Rethink Solutions. All Rights Reserved