Promise vs. Production: Why Conversions Haven’t Moved the Needle on Empty Offices or Housing Supply
September 19, 2025
By Allwyn Dsouza, Senior Analyst, Research and Insights, REIC/ICI
By Allwyn Dsouza, Senior Analyst, Research and Insights, REIC/ICI
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Expectations that office-to-residential conversions could solve Canada’s housing crunch ran high after Ottawa doubled its 2021 budget commitment, launching a $600-million program to convert space in the federal portfolio and privately owned buildings, alongside a pledge to work with municipalities on fast-track permitting. While office-to-residential conversions sound promising, successful achievement remains elusive across Canada. From an idealistic scenario, office-to-residential conversions sit at that intersection—shrinking obsolete office inventory while adding homes. On paper, they’re faster and cheaper than ground-up builds, a useful counterweight as higher rates and the 2026 - 2027 refinancing wall expose weaker assets. In practice, they only pencil when four stars align: a low purchase basis, convert-friendly floorplates and heights, fast approvals, and a little public money.
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Canada is testing this in real time. Calgary’s published grant and fast lane have moved projects from press release to keys-in-hand. Toronto is easing office-replacement rules, Ottawa has real deals underway, while B.C. and Québec remain case-by-case. We have tried to separate promise from reality: we quantified what could convert, why many vacancies won’t, what policy levers actually matter, and where a targeted program can deliver meaningful—but not miraculous—housing.
Why conversions look compelling (on paper) but fail to take off
National office stress has plateaued but still continues to remain high. Altus pegs availability at 16.6% (Q2-2025)—high enough to supply candidates[1]. Against that backdrop, conversions beat ground-up on both cost and time: ~$250–350/sf versus ~$380/sf for similar new product, and ~6–18 months faster when the structure and core are reused[2]. On a $50 million project at a 7% carry, shaving 9–12 months avoids ~$2.6–3.5 million in interest and pulls forward revenue. Add the macro benefits—right-sizing downtown inventory, easing lender pressure at maturity, and delivering homes on a shorter clock—and the policy case writes itself.
Why conversions look compelling (on paper) but fail to take off
National office stress has plateaued but still continues to remain high. Altus pegs availability at 16.6% (Q2-2025)—high enough to supply candidates[1]. Against that backdrop, conversions beat ground-up on both cost and time: ~$250–350/sf versus ~$380/sf for similar new product, and ~6–18 months faster when the structure and core are reused[2]. On a $50 million project at a 7% carry, shaving 9–12 months avoids ~$2.6–3.5 million in interest and pulls forward revenue. Add the macro benefits—right-sizing downtown inventory, easing lender pressure at maturity, and delivering homes on a shorter clock—and the policy case writes itself.
Figure 1.0
Source: altusgroup.ca
Despite these advantages vacancies remain high, and conversions are not the norm for long vacant office buildings.
The Hard Ceiling: Why Most Vacant Offices Don’t Convert
High vacancy doesn’t equal conversion-ready supply—many buildings fail basic feasibility tests. Some key hurdles include:
1) Building geometry
The “wrong shape” kills feasibility. Housing needs daylight and stackable unit layouts; offices were optimized for open plans. Preferred traits: window depth ≈ 35 ft (≈11 m) from façade to core; narrower floorplates; and floor-to-floor heights that can yield ~9 ft finished ceilings after ducts/MEP (typical offices: 11–14 ft floor-to-floor). Deep plates, oversized cores, or insufficient egress/elevators force expensive interventions (light wells, new shafts) or make unit planning impractical.
2) Path to vacancy and speed
Time is the make-or-break variable. If existing tenants must be bought out, “vacating to zero” can take years or blow the budget. Successful cases (e.g., Calgary’s Cornerstone; NYC’s 160 Water Street) had a clear path to vacancy and then moved fast—demolition and fit-out started immediately.
3) Economics under higher rates
Conversions are ~30–40% cheaper than comparable new builds—typical ~$250–$350/sf (vs. new build ~$380/sf)—if the acquisition basis is low and MEP/envelope work is manageable. But the biggest costs are MEP and envelope/façade upgrades; window replacement alone can consume a double-digit share of hard costs. In a 5–7% capital environment, a few months’ delay or an extra $50/sf on mechanicals can sink IRR.
The Hard Ceiling: Why Most Vacant Offices Don’t Convert
High vacancy doesn’t equal conversion-ready supply—many buildings fail basic feasibility tests. Some key hurdles include:
1) Building geometry
The “wrong shape” kills feasibility. Housing needs daylight and stackable unit layouts; offices were optimized for open plans. Preferred traits: window depth ≈ 35 ft (≈11 m) from façade to core; narrower floorplates; and floor-to-floor heights that can yield ~9 ft finished ceilings after ducts/MEP (typical offices: 11–14 ft floor-to-floor). Deep plates, oversized cores, or insufficient egress/elevators force expensive interventions (light wells, new shafts) or make unit planning impractical.
2) Path to vacancy and speed
Time is the make-or-break variable. If existing tenants must be bought out, “vacating to zero” can take years or blow the budget. Successful cases (e.g., Calgary’s Cornerstone; NYC’s 160 Water Street) had a clear path to vacancy and then moved fast—demolition and fit-out started immediately.
3) Economics under higher rates
Conversions are ~30–40% cheaper than comparable new builds—typical ~$250–$350/sf (vs. new build ~$380/sf)—if the acquisition basis is low and MEP/envelope work is manageable. But the biggest costs are MEP and envelope/façade upgrades; window replacement alone can consume a double-digit share of hard costs. In a 5–7% capital environment, a few months’ delay or an extra $50/sf on mechanicals can sink IRR.
Table 1.0 Conversion Cost for Cornerstone Building (Calgary)
| Expense | % of Total Development Cost |
| Mechanical Systems | 11% |
| Exterior | 9% |
| Interior Walls | 8% |
| Electrical | 7% |
| Recessed Balconies | 3% |
| Sprinkler and Alarm System | 3% |
| Remaining hard Costs, Soft Costs, Acquisition | 60% |
| Total | 100% |
Source: ULI
4) Policy drag
Rigid rules (e.g., historic “1:1 office replacement” expectations in Toronto), slow entitlements, and case-by-case negotiations add time and uncertainty—i.e., cost. Without a predictable playbook, lenders and equity hesitate.
Toronto and Vancouver will see more potential candidates as maturities bite—but without Calgary-like support, many of those candidates won’t clear the underwriting bar. In that context, predictable municipal grants (or fee holidays) can be the difference between a building that trades to a converter versus one that sits empty[3].
What can enable successful conversions
1) Clear, bankable public support
Calgary is the benchmark: a published grant (~$75/sf), reimbursed at occupancy, sized to ~25–30% of total conversion cost, plus fast approvals (no change-of-use permit). That combination bridged feasibility gaps and turned a paper pipeline into deliveries (thousands of homes and hotel rooms).
2) As-of-right zoning and FAR tools
As-of-right removes entitlement risk; FAR bonuses or the ability to redistribute carved-out floor area (e.g., from light wells to a rooftop addition) can fix awkward plates while preserving value.
3) Favorable, scalable debt
CMHC’s multifamily programs (high loan-to-cost, pricing that rewards affordability/accessibility/sustainability) materially lower WACC—critical when carrying a shell through construction and lease-up.
4) Program management, not project-by-project heroics
Cities should publish an inventory of conversion-ready buildings, pre-clear code pathways (life safety, egress, accessibility), and run a fast-lane SLA for permits. Coupling grants/tax tools with area plans (schools, groceries, parks) ensures the neighborhood can absorb new residents.
5) Practical design heuristics
Target Class B/C, 1960s–1970s stock with smaller plates and good bones; aim for ≥60 units for efficiency; expect 80–85% net efficiency (often higher than new build). Retain structure/elevators where possible, budget heavily for MEP.
Nonetheless, despite all the positives and a push for policy support conversions won’t move the needle significantly. We ran a bottom-up screen to gauge realistic impact. Starting with CBRE’s Q1-2025 market data (NRA × vacancy) to size unoccupied office, we then applied a physical feasibility filter (only buildings with workable floorplates, heights, egress—assumed 25% based on multi-city studies). Finally, we layered an economic viability step: under status-quo policy, only a slice of feasible stock pencils (AB 50%; ON 15%; QC/BC/MB/NS 10%). Under a Calgary-style program (grant + fast lane), we assume 60% of feasible stock proceeds. Unit output uses ~1,000 sf/home; public cost reflects a $75/sf grant.
What that yields:
Rigid rules (e.g., historic “1:1 office replacement” expectations in Toronto), slow entitlements, and case-by-case negotiations add time and uncertainty—i.e., cost. Without a predictable playbook, lenders and equity hesitate.
Toronto and Vancouver will see more potential candidates as maturities bite—but without Calgary-like support, many of those candidates won’t clear the underwriting bar. In that context, predictable municipal grants (or fee holidays) can be the difference between a building that trades to a converter versus one that sits empty[3].
What can enable successful conversions
1) Clear, bankable public support
Calgary is the benchmark: a published grant (~$75/sf), reimbursed at occupancy, sized to ~25–30% of total conversion cost, plus fast approvals (no change-of-use permit). That combination bridged feasibility gaps and turned a paper pipeline into deliveries (thousands of homes and hotel rooms).
2) As-of-right zoning and FAR tools
As-of-right removes entitlement risk; FAR bonuses or the ability to redistribute carved-out floor area (e.g., from light wells to a rooftop addition) can fix awkward plates while preserving value.
3) Favorable, scalable debt
CMHC’s multifamily programs (high loan-to-cost, pricing that rewards affordability/accessibility/sustainability) materially lower WACC—critical when carrying a shell through construction and lease-up.
4) Program management, not project-by-project heroics
Cities should publish an inventory of conversion-ready buildings, pre-clear code pathways (life safety, egress, accessibility), and run a fast-lane SLA for permits. Coupling grants/tax tools with area plans (schools, groceries, parks) ensures the neighborhood can absorb new residents.
5) Practical design heuristics
Target Class B/C, 1960s–1970s stock with smaller plates and good bones; aim for ≥60 units for efficiency; expect 80–85% net efficiency (often higher than new build). Retain structure/elevators where possible, budget heavily for MEP.
Nonetheless, despite all the positives and a push for policy support conversions won’t move the needle significantly. We ran a bottom-up screen to gauge realistic impact. Starting with CBRE’s Q1-2025 market data (NRA × vacancy) to size unoccupied office, we then applied a physical feasibility filter (only buildings with workable floorplates, heights, egress—assumed 25% based on multi-city studies). Finally, we layered an economic viability step: under status-quo policy, only a slice of feasible stock pencils (AB 50%; ON 15%; QC/BC/MB/NS 10%). Under a Calgary-style program (grant + fast lane), we assume 60% of feasible stock proceeds. Unit output uses ~1,000 sf/home; public cost reflects a $75/sf grant.
What that yields:
- Status quo: ~3.07 million viable sf → ~3,125 homes.
- Calgary-style nationwide: ~8.29 million viable sf → ~8,290 homes, requiring ~$622 million in grants.
- The largest lift sits in Ontario (~3.92M sf; ~$294 million grants), then Alberta (~2.04M sf; ~$153 million in grants); Québec, B.C., Manitoba, and Nova Scotia contribute smaller totals.
Base Case
A) If province keep status-quo policies
(Feasibility 15%; viability per province as described)
A) If province keep status-quo policies
(Feasibility 15%; viability per province as described)
| Province | Viable SF (in millions) | # of Homes |
| Alberta | 1.7 | 1700 |
| Ontario | 0.98 | 1000 |
| Québec | 0.24 | 250 |
| British Columbia | 0.09 | 100 |
| Manitoba | 0.04 | 50 |
| Nova Scotia | 0.02 | 25 |
| Total | 3.07 | 3125 |
Source: REIC Analysis
B) If province adopt a Calgary-style program (grant + fast lane)
(Feasibility 15%; 60% of feasible goes ahead)
(Feasibility 15%; 60% of feasible goes ahead)
| Province | Viable SF (in millions) | # of Homes | Government funding @ $75/sf (in $ million) |
| Alberta | 3.92 | 3,920 | 294 |
| Ontario | 2.04 | 2,040 | 153 |
| Québec | 1.45 | 1,450 | 109 |
| British Columbia | 0.52 | 520 | 39 |
| Manitoba | 0.22 | 220 | 17 |
| Nova Scotia | 0.14 | 140 | 11 |
| Total | 8.29 | 8,290 | 6212 |
Source: REIC Analysis
Methodology
1. Unoccupied SF = net rentable area (NRA) x vacancy rates from CBRE’s Q1-2025 “Canada Office Figures”[4]
2. Physical feasibility filter: Only a subset of buildings have the right floorplate depth, window-to-core distance, ceiling height, elevators/egress to suit residential. We applied a 25% multiplier based on Gensler’s multi-city to the unoccupied space computed.[5]
3. Economic viability factor. Without incentives and fast-track, only a slice of feasible projects pencil. We computed two policy scenarios:
Achieving even this small win requires a coherent, nationwide policy, and grants architecture. The current approach is disjointed, with provinces moving at different speeds and priorities.
Province-by-province snapshot of policy and progress on office-to-residential (C→R) conversions in Canada—who’s actually doing what, and how far along they are.
1. Unoccupied SF = net rentable area (NRA) x vacancy rates from CBRE’s Q1-2025 “Canada Office Figures”[4]
2. Physical feasibility filter: Only a subset of buildings have the right floorplate depth, window-to-core distance, ceiling height, elevators/egress to suit residential. We applied a 25% multiplier based on Gensler’s multi-city to the unoccupied space computed.[5]
3. Economic viability factor. Without incentives and fast-track, only a slice of feasible projects pencil. We computed two policy scenarios:
- Status quo (today’s policies): modest viability (AB 50%—Calgary program helps; ON 15%; QC/BC/MB/NS 10%).
- Calgary-style (if other provinces copy it): 60% of physically feasible SF goes ahead (benchmarked to Calgary’s realized share). Calgary grants ~C$75/sf and a true fast lane; that’s what moves deals.[6]
Achieving even this small win requires a coherent, nationwide policy, and grants architecture. The current approach is disjointed, with provinces moving at different speeds and priorities.
Province-by-province snapshot of policy and progress on office-to-residential (C→R) conversions in Canada—who’s actually doing what, and how far along they are.
Alberta (Calgary-led) — national frontrunner
Calgary is the only city with a mature, bankable program: a published per-sq-ft grant and a dedicated approvals lane. As of mid-2025 the city reports 21 approved projects, removing ~2.68M sq. ft. of office to deliver ~2,628 homes, 226 hotel rooms, and a hostel; the Greater Downtown Plan pegs partner investment at ~$739M. Three projects are open and four more slated in 2025, validating that money + speed unlocks delivery.[8]
Ontario — policy pivot in Toronto, real projects in Ottawa
Toronto has moved from “replace everything” to a temporary, location-based office-replacement policy: in core areas the rule drops from 100% to 25% replacement, and 0% in other designated areas—crucial for feasibility, though broad incentives (like Calgary’s grants) are still absent. The framework is shifting, but a citywide capital tool hasn’t landed. Ottawa, meanwhile, has tangible projects: The Slayte (473 Albert, 158 units) is stabilized, and 360 Laurier (139 units) is under way—evidence that C→R can scale where policy friction is lower, and underwriting is pragmatic.[9]
British Columbia — big housing reforms, few downtown conversions
BC’s Small-Scale Multi-Unit Housing (SSMUH) laws forced nearly all municipalities to up-zone for multi-unit; ~90% had adopted by mid-2024. Vancouver aligned bylaws to enable multi-unit across former RS zones. These are meaningful housing wins, but they don’t directly solve downtown conversion math (acquisition basis, MEP/envelope retrofits, capital stack). There’s no Calgary-style, per-sf C→R incentive; consequently, realized office to rental conversions in Vancouver remain scarce.[10]
Québec — case-by-case, student-oriented tilt.
Montréal is seeing select office to student housing deals driven by investors comfortable with smaller units and shared amenities. Examples include acquisitions on Sainte-Catherine W. targeting ~69 beds, and another office sale positioned for student conversion. There isn’t a programmatic C→R framework akin to Calgary, so progress is deal-specific rather than pipeline-driven.[11]
Outside Alberta, most cities still lack a predictable, per-sf incentive and a true fast-track approval lane—the two levers that collapse feasibility gaps and remove 6–18 months of carry versus ground-up. Toronto’s policy reset is necessary, but until it’s paired with funding or fee holidays, many pro formas will stay marginal. BC’s multi-unit push is excellent for overall supply yet not sufficient enough to push commercial to residential conversions; a bespoke tool is needed. Québec has sponsor interest, but without a provincial/municipal capital program, momentum remains project-by-project.
As governments pilot grants, office-replacement reforms, and CMHC-backed financing, REIC bridges data, and knowledge gap for its members. Through education, credentialing, and applied research, REIC equips members to assess supply-demand dynamics, engage lenders and municipalities with facts, and prioritize high-scoring assets. With standards, case studies, and peer learning, REIC helps professionals navigate risk, communicate trade-offs, and deliver housing that is financially sound, socially responsible, and resilient across cycles.
Calgary is the only city with a mature, bankable program: a published per-sq-ft grant and a dedicated approvals lane. As of mid-2025 the city reports 21 approved projects, removing ~2.68M sq. ft. of office to deliver ~2,628 homes, 226 hotel rooms, and a hostel; the Greater Downtown Plan pegs partner investment at ~$739M. Three projects are open and four more slated in 2025, validating that money + speed unlocks delivery.[8]
Ontario — policy pivot in Toronto, real projects in Ottawa
Toronto has moved from “replace everything” to a temporary, location-based office-replacement policy: in core areas the rule drops from 100% to 25% replacement, and 0% in other designated areas—crucial for feasibility, though broad incentives (like Calgary’s grants) are still absent. The framework is shifting, but a citywide capital tool hasn’t landed. Ottawa, meanwhile, has tangible projects: The Slayte (473 Albert, 158 units) is stabilized, and 360 Laurier (139 units) is under way—evidence that C→R can scale where policy friction is lower, and underwriting is pragmatic.[9]
British Columbia — big housing reforms, few downtown conversions
BC’s Small-Scale Multi-Unit Housing (SSMUH) laws forced nearly all municipalities to up-zone for multi-unit; ~90% had adopted by mid-2024. Vancouver aligned bylaws to enable multi-unit across former RS zones. These are meaningful housing wins, but they don’t directly solve downtown conversion math (acquisition basis, MEP/envelope retrofits, capital stack). There’s no Calgary-style, per-sf C→R incentive; consequently, realized office to rental conversions in Vancouver remain scarce.[10]
Québec — case-by-case, student-oriented tilt.
Montréal is seeing select office to student housing deals driven by investors comfortable with smaller units and shared amenities. Examples include acquisitions on Sainte-Catherine W. targeting ~69 beds, and another office sale positioned for student conversion. There isn’t a programmatic C→R framework akin to Calgary, so progress is deal-specific rather than pipeline-driven.[11]
Outside Alberta, most cities still lack a predictable, per-sf incentive and a true fast-track approval lane—the two levers that collapse feasibility gaps and remove 6–18 months of carry versus ground-up. Toronto’s policy reset is necessary, but until it’s paired with funding or fee holidays, many pro formas will stay marginal. BC’s multi-unit push is excellent for overall supply yet not sufficient enough to push commercial to residential conversions; a bespoke tool is needed. Québec has sponsor interest, but without a provincial/municipal capital program, momentum remains project-by-project.
As governments pilot grants, office-replacement reforms, and CMHC-backed financing, REIC bridges data, and knowledge gap for its members. Through education, credentialing, and applied research, REIC equips members to assess supply-demand dynamics, engage lenders and municipalities with facts, and prioritize high-scoring assets. With standards, case studies, and peer learning, REIC helps professionals navigate risk, communicate trade-offs, and deliver housing that is financially sound, socially responsible, and resilient across cycles.
[1] altusgroup.ca
[2] ULI
[3] Altus Group
[4] CBRE
[5] Gensler
[6] Calgary.ca
[7] Calgary.ca
[8] Calgary development incentive program
[9] Toronto.ca
[10] Gov.bc.ca
[11] Costar.com
[2] ULI
[3] Altus Group
[4] CBRE
[5] Gensler
[6] Calgary.ca
[7] Calgary.ca
[8] Calgary development incentive program
[9] Toronto.ca
[10] Gov.bc.ca
[11] Costar.com
Allwyn Dsouza is REIC’s Senior Analyst, Market Research and Insights. He can be reached at [email protected]. Media enquiries can be directed to [email protected].