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Calgary’s Office-To-Residential Conversion

Calgary, the largest city in Alberta, Canada, is known for its bustling downtown core with towering skyscrapers that house some of the biggest companies in the country. But with the current economic downturn and changes in work culture due to the pandemic, there has been a shift in demand for office space. In response to this, the city has launched a program to convert some of these office towers into residential homes. Let's explore this initiative in more detail.

The Calgary office towers to residential homes program aims to convert underutilized office space into much-needed residential housing. This initiative is a win-win situation as it helps to address the city's housing shortage while also repurposing unused space in a sustainable and cost-effective manner. With the rise of remote work, the demand for office space has decreased, and many buildings are now sitting empty. The conversion of these buildings into residential homes not only addresses the need for affordable housing but also reduces the carbon footprint of the city by making use of existing infrastructure.

The program offers incentives to developers to convert these buildings into residential homes, including financial assistance and streamlined permitting processes. This helps to make the conversion process more feasible and attractive for developers who might have been hesitant to undertake such a project without the program's support. The program also helps to address zoning and regulatory hurdles, which can be a significant obstacle to repurposing office buildings into residential homes.

The benefits of this program are significant. Firstly, it helps to address the city's affordable housing crisis, providing much-needed housing options for families and individuals. It also helps to reduce the carbon footprint of the city by repurposing existing infrastructure, rather than building new developments from scratch. Finally, it provides an economic boost to the city, creating new jobs in the construction and development sectors.

The conversion of office towers to residential homes is not without its challenges. One significant challenge is the cost of the conversion process. The cost of retrofitting a commercial building to meet residential building codes and standards can be high. Developers will need to invest in plumbing, electrical, and HVAC systems to meet residential requirements. Another challenge is the need to address parking and transportation issues. Many commercial buildings do not have adequate parking facilities or transportation links to support residential use. Addressing these challenges will require creative solutions and collaboration between developers, the city, and transportation authorities.

In conclusion, the Calgary office towers to residential homes program is a significant initiative that addresses the city's housing shortage, reduces its carbon footprint, and provides an economic boost. While the conversion process comes with its challenges, the benefits far outweigh the costs. With the city's support and the collaboration of developers and other stakeholders, we can transform Calgary's underutilized office space into vibrant and sustainable residential communities.

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Enduring Short-Term Discomfort for Long-Term Benefits: Vancouver's Broadway Corridor Tenants Remain Committed Amidst Broadway Subway Construction Congestion

Despite ongoing construction and the nationwide economic conditions affecting all markets, the Broadway Subway expansion in Vancouver has not dampened demand for office and retail space in the Broadway Corridor area. The much-anticipated 5.7-kilometre expansion of the rapid transit Millennium Line from VCC-Clark Station to Arbutus and Broadway, with a potential future phase extending to the University of British Columbia, is expected to bring significant amounts of new housing, rental and condo, podium and street-level office and retail spaces, as well as improved access for metropolitan region residents to rapid transit.

Market performance in the Broadway Corridor has been noticeably positive for both retail and office leasing, driven by the success of redevelopment projects in the Mt. Pleasant area. Despite increased congestion and higher rental premiums, firms are recognizing the benefits of the infrastructure project and are committed to the area. Office leasing activity ramped up in mid-2021 and reached a seven-year peak in mid-2022 in terms of leased, renewed, or sublet square feet, with creative, tech, and health sciences tenants contributing to the growth, particularly in the Mt. Pleasant market. The Broadway Corridor's tight retail conditions, with only 2% vacancy, have not deterred retail leases, with between 20,000 and 35,000 square feet of space leased quarterly in 2022, culminating in more than 100,000 square feet leased, on par with 2019 and 2021.

The area's added purchasing power has attracted retail tenants, with households within a five-kilometre radius of the Broadway and Granville intersection typically housing medium to high-income earners, with a third of households exceeding the $150,000 mark, and just over 10% in the $80,000 to $100,000 range. The area is forecast to see population growth of at least 14% over the next 10 years and up to 40% over the next 30 years, with new residential builds expected to increase the area's affluence.

Rapid transit expansion in Vancouver has had a mixed history, with the cut-and-cover construction process of the Cambie Street line resulting in a significant loss of foot traffic and parking for stores in the retail landscape. This time, the Broadway Subway will utilize tunnel boring machines, which will significantly limit but not eliminate the disruptions caused by construction in the area.

While Vancouver has been listed as one of the worst Canadian cities for traffic and fourth-worst in North America, the launch of the Broadway Subway in 2026 is expected to ease access to the growing number of businesses along and surrounding the Broadway strip, making it easier for local residents to reach these businesses. The firms in the area are counting on the dramatic uptick in local residents to boost business despite the ongoing traffic issues.

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Bank of Canada holds interest rate steady
As signalled in its previous interest rate announcement, The Bank of Canada maintained its overnight rate at 4.5 per cent this morning. In the statement accompanying the decision, the Bank noted that restrictive monetary policy is weighing on demand and it expects weak economic growth for the next couple of quarters. That weak growth should moderate wage growth in a currently tight labour market and ease competitive pressures on prices, ultimately leading to inflation reaching 3 per cent by the middle of 2023.  As for the possibility of future rate increases, the Bank stated that it will continue to assess economic developments and the impact of past interest rate increases and is prepared to increase its policy rate further if needed. 

Economic data in Canada has been mixed of late.  Labour markets remain very strong while economic growth appears to have somewhat stalled. Inflation, while still high on a year-over-year basis, has come down significantly on a monthly basis with total CPI trending at 2.5 per cent annualized over the past three months and core measures of inflation trending at between 2.5 and 3.5 per cent. Uncertainty as to the direction of the economy has led to significant volatility in bond yields as financial markets grasp for clues on future monetary policy decisions. As a result, 5-year bond yields in Canada (an important benchmark for fixed mortgage rates) have soared back to their previous highs. Consequently, after falling to start the year, fixed mortgage rates have ticked slightly higher. However, we still anticipate that mortgage rates will end the year lower once the full impact of the past year of rate increases is felt on economic growth and inflation.
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"Vancouver's Home Sales are On the Rise Again - Be Aware"

The Real Estate Board of Greater Vancouver (REBGV) has released sales data and anecdotal reports which indicate that the nine-month decline in the housing market may be coming to an end. Despite initial fears of a listing shortage, there were 8,072 homes of all types for sale as of mid-February, approximately one-third higher than in February of last year before the first of eight straight interest rate increases began.

The market may have bottomed out in January 2023 when residential sales through the REBGV fell more than 55% from a year earlier and were down 21% from a month before, resulting in just 1,022 transactions. January sales were 43% below the 10-year January sales average. However, things have changed this month, as data from the mid-point of February reveals there have been 878 sales in Greater Vancouver, which is far higher than the 334 that had sold at the mid-point of January, and about 100 more sales than the mid-point of November and December of last year.

Data for the first two weeks of February shows that the sales-to-new-listing ratio hit 48%, double the level in January, when just 24% of new listings sold. This means that, so far this month, nearly one of every two new listings found a buyer. According to the REBGV, there is a correlation between the sales ratio and home prices. Generally, home prices experience upward pressure when the sales-to-listing ratio surpasses 20% over several months, and prices decline when the ratio is consistently below 12%.

Based on REBGV mid-February data, markets with the most sales action include Burnaby North, Burnaby South, and Coquitlam, which posted more sales in the first two weeks of February than in all of January 2023. Vancouver East saw the sales-to-new-listing ratio for condominium apartments hit 69% so far in February.

Although a two-week sales increase may not indicate a long-term recovery in housing sales, the BC Real Estate Association is forecasting that 2024 will be a banner year for residential real estate throughout the province. “We expect a strong recovery, boosted by an expected decline in mortgage rates and record high immigration that will carry significant momentum into 2024,” said BCREA Chief Economist Brendon Ogmundson.

The Bank of Canada has also hinted that its 25-basis-point increase in lending rates on January 25 may be the last one for this year. Skipworth suggests that the stronger February sales may reflect that some homebuyers and investors see 2023 as a “positioning year” in expectation of higher prices and demand in 2024.

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Record Rent Growth in Vancouver has been Attributed to the Tenant Movement During the Pandemic.

Rent growth in Vancouver's multifamily market in 2022 was unprecedented, thanks to an unexpected opportunity presented by the turnover of tenants during the first two years of the pandemic. Landlords were able to increase rents to market levels, catching up on some of their operating costs. However, the current conditions are causing two specific issues, increasing household debt and livability crises. The obvious solution is to build more rentals, but there are challenges that work against initiating a historic building cycle immediately.

Inflation, construction material shortages, and rapid increases in borrowing costs are major factors affecting the building of more rentals. Local governments, both municipal and provincial, are also providing additional hurdles, exacerbating the initiation of measures that could assist with affordability. Achieving development approval from municipal governments takes at least two to three times longer in Vancouver compared to Edmonton and Calgary, and provincially initiated rent controls are significant deterrents to prospective investors and developers of rental towers.

The pandemic aggravated rental affordability when many tenants moved away from the urban core towards more affordable markets. Regionwide vacancy unwound to nearly 2%, initiating an opportunity for landlords to adjust what was once 'affordable rent' to a rate the market would bear. The new supply of rental housing in 2022 in greater Vancouver amounted to approximately 3,800 units, which is less than 3.5% of total inventory.

Rental construction levels in 2023 are at an all-time high for the Vancouver area. However, the number of units under construction isn't expected to provide significant relief to the segment of renters feeling the affordability squeeze, especially with the spike in international immigration and the housing-replacing-housing model. The solution to the affordability challenges is in the long game, with more units needed quickly and consistently to balance the rental market.

Current owners of buildings older than 50 years should be encouraged to facilitate the densification or redevelopment of new, purpose-built rental buildings. Removing these buildings while coordinating supply and involving housing nonprofit organizations may result in less short-term renter pain as the long game of rebalancing the rental market takes place. The market drivers aren't changing, with demand expected to continue to increase. Therefore, an array of units is needed to accommodate a range of household sizes and at various levels of quality that assist households in a wide range of economic statuses.


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