(Conversion of five floors of office space to 55 residential units at 825 8th Avenue SW in Calgary contributed to the property's successful sale this month.)

This month’s sale of a downtown Calgary highrise is showing the benefits of converting office space to residential in the city’s core.

Westview Heights, a 343-unit apartment tower at 825 8th Avenue SW, sold August 1 for $83.4 million, or $243,149 a door. This works out to blended price of $370 per square foot, compared to the current range of $50 to $100 per square foot for straight office space.

“You’d probably get very little value for the commercial space,” said Samuel Dean, senior vice-president, capital markets, JLL Canada.

The property is not among the 10 projects participating in Calgary’s Downtown Development Incentive Program, which aims to remove 6 million square feet of office space from the market by 2031.

The former owner, Mayflower Ventures LP, acquired the property in September 2007 and began the conversion process prior to the city initiative, recognizing the value that could be gained through residential space. A total of five floors were converted, yielding an additional 55 residential units.

This means the office conversion alone added in excess of $13 million to the value of the property, on top of the natural increase in value since acquisition.

Mayflower decided to sell now as it refocuses on new development opportunities. With strong demand for housing from new arrivals, it saw an opportunity to present the building as rents march northwards. Close to a third of units were vacant at the time of the sale, meaning Westbow Capital has plenty of room to lease them up at market rates.

“The ability to go in there and take advantage of where the Calgary market currently is definitely played a big part in the transaction,” Dean said. “Historically, you wouldn’t really have someone looking to take on that much lease-up risk, whereas in this situation it was actually a positive to have that vacancy.”

According to Rentals.ca, the average one-bedroom rent in Calgary in July was $1,718 a month, up 17.2 per cent from a year ago.

Canada Mortgage and Housing Corp. statistics for purpose-built rental units peg vacancies in Calgary at 2.8 per cent as of October 2022.

Close to 80 per cent of units at Westview Heights are one-bedroom apartments fetching in the range of $1,600 a month. The high rates for the market are creating demand for smaller units within the property.

The deal is the largest multifamily sale in Calgary in the past 12 months, and the second largest in Alberta following the sale of a new 396-unit purpose-built rental building in Edmonton on August 8 for $91.6 million or $231,313 a door.

The new owner, Westbow Capital of Chilliwack, will rebrand the building as District. The property is its first acquisition in Calgary. It currently owns properties in Edmonton, Red Deer and Saskatoon as well as B.C., meaning Calgary fills a geographic gap in its portfolio.

Westbow claims to have $550 million in assets under management. Residential rental units are held through Westbow Real Estate Properties Trust, which targets annual returns in the range of 9 to 12 per cent.

Westbow’s purchase occupies the same block as 805 8th Avenue SW, where another B.C. company, Cressey Development Corp., is converting approximately 64,000 sq. ft. to 85 residential units under Calgary’s conversion incentive program.

Cressey plans to retain its project on completion, holding it as an income-producing asset.

Government funding is driving a boom in daycare operations that’s adding youthful vigour to Alberta’s retail sector.

A mid-year review of national retail markets by CBRE Ltd. notes that daycare operators are booming in Calgary, even as financing for tenant improvements comes under greater scrutiny from lenders.

“It used to be they’d have all their ducks in a row beforehand, but now they’re doing more detailed costing, heavier review of business plans, and it’s just taking longer,” said Alistair Corbett, senior vice-president with CBRE Ltd. specializing in retail properties.

But that hasn’t dampened the appetite of daycare operators, who are crowding the market thanks to federal-provincial funding under the Canada-Alberta Canada-Wide Early Learning and Child Care Agreement.

A For-Profit Expansion Plan launched in February will see up to 22,500 private child care spaces eligible for funding in addition to the 42,500 non-profit child care spaces the province aims to create by 2025-26.

“We had a space come back,” Corbett said. “We put it out for an RFP and we had 14 responses. We got deluged with them. It was just crazy.”

Operator demand is transforming spaces that were otherwise hard to lease, such as restaurants that were shuttered during the pandemic and remain too large for current market demand.

“Very few people want to go and lease 8,000, 9,000-square-foot old restaurants,” Corbett said. “Who’s busy and who’s willing to pay? Right now, it’s daycares.”

(Banff's Rimrock Resort Hotel sold to Oxford Property Group in June for $170 million, or $515,200 a room -- Western Canada's biggest hotel transaction of the year.)

Record-high rates and revenue are attracting investor interest in Western Canada’s hotels.

The region saw $431 million worth of assets trade in the first half of 2023, or 41% of the national total, according to Colliers' second-quarter review of the hotel sector.

The second quarter some exceptional pricing for properties including the Rimrock Resort Hotel in Banff for $170 million, $515,200 a room, a price that reflected Oxford Property Group’s plans for a $100 million renovation.

Aldesta Hotel Group picked up Fairmont Hot Springs Resort in BC for $40 million, or $264,900 a room, in June. The deal included three golf courses, a 14-run ski hill, RV park, and more than 650 acres of excess lands.

The two properties ranked second and third after The Hazelton, a Toronto property that commanded an outlier price of $110 million or $1,428,000 a room thanks to the inclusion of 11,250 square feet of retail space, an underground parkade and a 50 per cent interest in the on-site restaurant.

Colliers cited strong growth in average daily rates, the resurgence of domestic travel and small to mid-size group activity as contributing the return of investor interest.

“Hoteliers are reaping substantial top-line gains driven by remarkable increases in average daily rates,” Colliers reported.

Canada’s hotel industry reported its highest average daily rate (ADR) and revenue per available room (RevPAR) on record, according June data from CoStar Group.

ADR soared 12 per cent to $221.86 a room while RevPAR increased 16.1 per cent to $164.97.

The increases came as average national occupancy rates rose 3.6 per cent versus last year to 74.4 per cent – the highest level since last August. With the increase coming ahead of the peak summer travel season, the prospects are good for new records being set in the third quarter.

“Canada’s hotel industry is benefitting from elevated spending on discretionary services,” said Laura Baxter director of hospitality analytics for Canada with CoStar.

Occupancies were highest at limited-service hotels, pointing to a trading down in activity, but group activity was up versus a year ago as this segment of demand continued its recovery from pandemic-era lows.

According to Colliers, full-service hotels accounted for 60 per cent of investor activity in the first half of the year. Limited-service-properties ranked second, at 26 per cent of transaction value.

But when the data was smoothed to account for the large number of high-value transactions, average sale price per room showed that investors were still willing to spend on limited-service properties as well as full-service hotels with equal enthusiasm.

The normalized price per room for all transactions in the first half of the year was $192,100, up 32 per cent from a year ago.