Converting vacant office spaces into homes may not be worth the cost or effort
Toronto's ambitious proposal to address the city’s housing crisis by converting vacant office buildings into residential units may not be the easy fix many hoped for.
A new report prepared for the City of Toronto found that converting office buildings into housing is often unprofitable, even in prime locations. This revelation puts a damper on the city’s hopes of replicating Calgary’s success in using empty office spaces to address housing shortages.
“Conversions involving the re-use of existing building envelopes without expansion are generally not feasible,” the report stated.
The issue is compounded by Toronto’s office replacement policy, which mandates developers to retain a certain percentage of office space during redevelopment. This requirement often renders conversion projects financially unviable, especially for larger “Class A” office towers in areas like the Financial District.
“Generally, projects become unviable when more than 25% of existing office space is required to be replaced,” the report said.
For many buildings, particularly small and medium-sized “Class B” and “Class C” offices, demolition followed by redevelopment may be a more practical solution. The report said these sites have the greatest potential for creating new housing, particularly in key areas like the Yonge Street corridor.
A hypothetical scenario outlined in the study estimated that redeveloping 10% of small office buildings could generate up to 35,000 new residential units, including up to 901 affordable housing units.
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The need for solutions has been driven by a sharp rise in office vacancies. Toronto’s office vacancy rate hit 17.5% at the end of 2023, up from 13.6% in 2019. While the pandemic and the shift to hybrid work have played major roles, the report highlighted the economic implications of these empty spaces and the urgency to repurpose them effectively.
The report said “affordable ownership and rental housing” as the most beneficial use for repurposed office spaces, though additional incentives may be necessary to make these projects attractive to developers.
However, the feasibility of large-scale conversion remains in question. For every 25% of office space that must be replaced under city policies, the financial viability of projects declines sharply.
To overcome these challenges, the report recommended policy changes, such as allowing developers more flexibility to integrate mixed-use developments that would combine residential and commercial spaces. It also emphasized the importance of regularly monitoring market conditions and adjusting policies to respond to economic shifts.
“Now is the time to consider a marked policy response that enables an appropriate amount/type of conversion activity in response to a wholesale shift in the market, with a focus on providing flexibility and relaxation of the city’s policy structure,” the report read.
City officials are set to review the findings and consider the recommendations during an upcoming planning committee meeting. A final decision on the proposed changes is expected in early 2025.
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