Mixed uses and office conversions: A possible future for urban cores?

Workers have yet to return to big city offices in their pre-pandemic numbers, prompting questions about how to revitalize downtown cores as nine-to-fivers spend more of their days at home and companies forge new structures around hybrid work.

Some new projects suggest there is room to build more livable communities in office-dense neighbourhoods, with a major mixed-use building in Toronto and office-to-residential conversions in Calgary set to put that idea to the test.

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DOWNTOWN PATTERNS, MIXED-USE BENEFITS

Recent data from CBRE Canada pegged the country’s overall office vacancy rate at an all-time high of 17.7 per cent in the first quarter of 2023. Their report framed the trend as a “once-in-a-generation evolution” driven by new hybrid work realities, with people spending less time commuting to their office desks. The pattern has sparked fears about the recovery of downtown cores and the businesses that serve the workday crowds.

Toronto’s office vacancy rate hit its highest number in nearly 30 years at 15.5 per cent, while Vancouver reached a two-decade high of 10.4 per cent, the report said. Montreal and Ottawa reported record-high office vacancy rates of 16.5 per cent and 13.2 per cent, respectively.

It’s in this environment that downtown Toronto’s sprawling mixed use retail, residential and office project “the Well” is starting to come to life. Some tenants already moved in and construction in its late stages.

The completed building will feature an open-air retail and dining space, two small parks and swathes of public seating amid the residential and office tower complex – elements of a particularly desirable post-pandemic layout that the property’s owners say were a happy accident.

“We're in a fortunate position where the design we came up with checked most of the boxes,” Andrew Duncan, chief investment officer of building co-owner RioCan Real Estate Investment Trust, said after a tour of the space on Wednesday.

The Well’s owners stress that they haven’t had trouble attracting occupants, but the building hasn’t been untouched by companies’ reassessment of their office needs.

Star tenant Shopify announced earlier this year that it had decided not to move in to the Well after all – fitting with a trend noted in the CBRE’s April report, which said Toronto’s rise in office vacancies last quarter was in large part driven by tech companies “focusing on rightsizing” as they reset from a pandemic boom.

The absence of the building’s largest office tenant could impact the restaurants and other businesses on the Well’s lower levels, though Duncan emphasized that Shopify is locked in to pay rent for the next 14 years as it searches for a subletter.

“In a perfect world, would I love that space occupied, as landlord? Absolutely. But I remain hopeful that Shopify finds a tenant to take the space to activate the site,” he said, adding that other office tenants are moving in to “provide a great source of synergy for our retail and our residential.”

MIXED-USE BENEFITS

Billy Grayson, executive vice-president of centres and initiatives at the Urban Land Institute, said mixed-use buildings like the Well were designed in response to office trends that predated the pandemic, like the push for more on-site amenities and rise of co-working spaces. But ultimately, he said buildings with a variety of uses are more able to weather changes like unprecedented public health emergencies.

“Having a mix of uses makes that building and that area more resilient to whatever disruptions you may see, whether it's macroeconomic trends, demographic trends or post-pandemic trends, like the future of hybrid work,” he said in a recent interview.

WHAT IS THE OFFICE FOR?

Some office tenants that have moved in to the Well said they took the pandemic as an opportunity to rethink their layouts.

Sitting in a lounge populated with houseplants, comfortable seating and stunning views of Toronto’s downtown, Richard Witt, principal at architecture firm BDP Quadrangle, said the company had initially envisioned rows of desks in a traditional office setup. They worked out a new design in light of the pandemic and changing hybrid work interests of its employees.

“We had the opportunity to experiment on ourselves,” he said. The office has fewer desks per person but more breakout rooms for video calls, “touchdown spaces,” desk-booking software to manage the lack of assigned seating, as well as casual “technology-free” zones for people to recharge during the workday.

It appears to be working well so far. BDP hasn’t set a policy for required days in the office, but Witt said people still seem willing to come in, particularly for social events. BDP’s hybrid arrangement is a work-in-progress, but Witt said they are committed to making it work – and offering workers flexibility gives the firm a competitive advantage on talent.

The building’s proximity to Union Station is also a convenience factor for workers who have moved further into the suburbs during the pandemic, Witt added.

OFFICE-TO-RESIDENTIAL CONVERSIONS

The pandemic-induced flight from downtown cores has prompted cities to look at another option for increasingly empty office towers: converting offices into residential buildings. One Canadian city has become a case study for the appetite for and feasibility of such projects.

Calgary needed to fill a growing number of office vacancies and a massive related tax revenue hole well before the pandemic set in.

The spate of vacancies was a feature of the boom-and-bust oil economy that saw office tenants move out in droves in the mid-2010s, Sheryl McMullen, Calgary’s manager of downtown strategy planning and development services, said during a Toronto panel on office conversions. COVID-19 prompted the city to take a closer look at its options.

When the city’s office conversion program opened in spring 2021, more than a dozen applications quickly poured in. Ten residential projects have already been announced, and there is also interest from post-secondary institutions and other non-residential tenants.

“We're really looking to make a community,” McMullen said, adding that there was a concerted effort to make the vision a reality. “It’s the collaboration between business, private building owners, the community and the city to make this actually work.”

The Urban Land Institute published a report this year on the feasibility of office-to-residential building conversions as the idea becomes more popular. Grayson said he expects a next wave of conversions will begin within the next two years as office buildings with severe vacancy rates drop in value, forcing cities to become interested in finding other uses for them.

Conversion projects can be tricky, but Grayson said they offer one way to increase affordable housing supply—of which Toronto is in dire need—if political will is there, potentially bringing life back to dense downtown cores.

“Everything is possible with the right mix of incentives,” he said.

“FIVE-MINUTE CITY”

It’s unclear how many people the Well will attract from outside its walls once it’s completed, but principal BDP architect Adrian Price said the layout should be appealing to the workers and residents who spend their days there.

“It’s the ultimate five-minute city,” he said. “You just pop down in an elevator and everything's there.”

Grayson noted that cities like Hong Kong and Paris that already had a mix of residential, retail and work spaces in close proximity to each other proved more “pandemic-proof” than their counterparts, and the concept remains attractive as people look to minimize their commute times.

Katia Stern, who moved into an apartment in one of the Well’s residential towers this spring, said she’s looking forward to the downstairs market and community spaces opening up. In fact, the concept was a major draw for her, as it eliminates the need for long drives to run errands or connect with other people.

“I immediately signed up,” she said. “I'm about not spending my precious time and energy.”