As cities across North America continue to deal with office space made surplus when remote work arrangements became mainstream during the pandemic, the concept of converting office buildings into other uses has been much discussed. In reality, however, office conversions have only taken off in a few small pockets.
Return-to-office is still being sorted out but a bifurcation in the office market is clear. Upper tier space (Class AAA and A) remain strong, while and lower Class B and C space is bearing the brunt of the struggles in most markets.
As one example, vacancy rates in AAA, A, B and C buildings in Vancouver were all just below 5 per cent in the third quarter of 2019, according to data published by commercial real estate services firm Avison Young in mid-January. Following the fourth quarter of 2025, the vacancy rate of AAA and A buildings are both around 9 per cent, while the vacancy rate of B and C buildings have shot up to 12 per cent and 16 per cent, respectively.
This is the so-called “flight to quality” and it’s a trend that can be seen in most of the major office markets in Western Canada in varying degrees. The question for office landlords, then, is what to do with those B and C buildings.
CALGARY
Calgary is ground zero for office conversions, not just in Canada, but across North America, with about 2.7 million square feet of space across 21 office buildings converted or in the process of being converted. Calgary had a head start, however, as its office market slumped along with the energy sector in 2015, with office vacancy peaking at over 30 per cent. In response, the City of Calgary created a suite of downtown conversion incentives, offering $75 per square foot of office space converted.
“We’re actually seeing conversions across the entire downtown market,” said Walsh Mannas, principal with Avison Young’s capital markets group in Calgary. “We have some very obsolete buildings that are natural conversions, but if the opportunity presents itself with a building like Chevron [Plaza] that’s a higher-quality building but ended up in a scenario with 100 per cent vacancy, that is also being looked at by converters.”
According to Mannas, any office building with a significant vacancy is being examined for conversion. In recent years, large institutions have been selling their office assets in Calgary, creating a “generational opportunity” for smaller private firms to snatch up assets they may not have ever been able to touch if not for the current market dynamics. A small handful of groups have homed in on conversions, but there is a decreasing number of available assets as a result of elevated transaction levels in recent years.
“There’s been a flight to quality for years, so those higher-quality AA or A buildings that have been greatly improved are seeing greater success,” said Mannas. “And more often than not, those landlords are willing to build out turnkey spaces for these tenants, and that is what you need to compete in the financial core office market. There is still demand in the West End, where 90 per cent of our conversions are taking place, but the story is a bit different there. Those tenants are smaller, they can be private firms, they’re 2,000 to 8,000 square feet – they’re not building out the same quality of space and the same quality of amenities, but you are still improving that space.”
Municipal elections were held in October, and a few cracks emerged after some councillors voiced opposition to the incentive program, with concern about whether it is the best use of taxpayer dollars, although newly elected Mayor Jeromy Farkas voiced support for it and downtown revitalization.
EDMONTON
In fall 2023, facing an office vacancy that was rising past 20 per cent, Edmonton began exploring its own office conversion incentive program. An incentive program offering $100 per square foot was discussed, but ultimately did not come to fruition after the city was unable to find funding for the program.
There are still a few conversions happening, such as the partial conversion of the Phipps McKinnon building and Standard Life Centre by Josan Properties and Leder Investments, respectively. Most office landlords have not been able to fall back on conversion as a repositioning strategy, however.
“Ultimately, I think the reason these investors aren’t going ahead with conversions at the same pace as Calgary developers are is just the high cost,” said Reed Newnham, principal with Avison Young’s capital markets group in Edmonton. “There’s large risks with these ’60s and ’70s vintage buildings.”
Considerations include the floor plate and the right configuration of mechanical systems, plumbing, HVAC – all of which can easily cause the cost of development to spiral far beyond the original budget.
“That’s why we’re seeing most of our investors look to just reposition, add amenity space, and increase the ability of that building to compete,” he added, noting that show suites – units that are fitted out and turnkey – have been a strategy landlords have used in both Edmonton and Calgary. “There’s a lot of options on the market, so any tenant who’s cost-conscious and looking in the Class B and C inventory – as a landlord you need to find a way to differentiate your space and your offering.”
Discussions of an incentive program have died down, but it’s worth noting that Edmonton’s local election in October saw Andrew Knack elected as mayor, and Knack was the councillor who led the push for the incentive program two years ago.
REGINA AND VANCOUVER
Two other notable Western Canada markets are Regina and Vancouver, and they’re notable for the same reason: both have remained relatively stable, albeit on drastically different scales.
“Pre-pandemic to today, there hasn’t been a whole lot of change,” said Linely Schaefer, Avison Young’s managing director in Regina. “We’ve always had vacancy in our market. We’re a government-driven town, so all of our A space is basically occupied by the government and various other privates. Our vacancy is in the mid-teens, with a healthy market being around 9 per cent. Do we have a ways to go? Sure. Do we have huge blocks just sitting there? Other than one or two, there’s not … We’re Saskatchewan: no peaks, no valleys. Just steady going.”
Regina actually has an office-to-residential conversion incentive program of its own, offering the same $75 per square foot that Calgary offers, but Schaefer said little to no conversions are happening because few of the buildings are suitable for conversion and the cost of constructing a brand new building is not as high as it is in other markets.
Vancouver is a significantly larger market and its vacancy rate has risen in recent years, but its vacancy rate remains one of the lowest in North America. There’s been some flight to quality, but the gap between the upper echelon and lower echelon of office buildings is not as drastic as it is in some other markets.
“One important aspect to bear in mind in the Vancouver market is that although a lot of tenants would like to fly to quality, we don’t necessarily have enough A and AAA space to accommodate them,” said Avison Young’s Michael Emmott. “This market in some ways is short on that very upper echelon of office building, which I think is part of the reason why we’re not seeing some of the B and C buildings empty as fast as perhaps in other markets. There’s still demand for B and C buildings. Not everyone is willing or able to afford the rents and operating costs for the highest-standard office.”
As there have been much less vacancy to work with, Vancouver has seen very few office-to-residential conversions in recent years. What Vancouver has seen, however, as the municipal government pushes for more hotel rooms, is some office-to-hotel conversions, such as Reliance Properties and Germain Hotels’ conversion of 1111 West Hastings.
“Pure residential conversions have not, at this stage, been encouraged,” said Emmott. “We’re also not long on vacant buildings yet, and it does take a significant amount of time to empty an office building. Unless you have a single tenant expiry, you would probably have to live through several years of vacancy in your building as tenants empty one by one, and that can be a very expensive process.”
Office conversions are therefore largely dependent on local market conditions, and a function of necessity rather than choice. And as 2026 unfolds, Avison Young’s experts all see stability and upside for their respective markets, with flight to quality persisting and landlords continuing to find ways to reposition their buildings, with or without conversions.
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