I was referring to our current supply - I would expect the existing good quality offices to be the foundation for the next decades, while the lower quality stuff degrades and we add almost nothing new beyond the occasional boutique or location-specific development, probably at a small scale. Some of the older stuff is or will become functionally obsolete as office space entirely, which I would assume to see some conversions and tear downs in the coming decades. Office buildings can't always convert (or it'll be cheaper to tear it down and start over) but we might get a few conversions. Definitely watch for the west end of downtown of those mid-sized 1970s/1980s office blocks to be the first to go.
I don't have much insight into this, but would be really interested to understand what existing building owners are thinking about this, particularly the ones that own these older, less major buildings. Some of these nearly empty older buildings must have really slim prospects of gaining tenants for the foreseeable future - how long do companies wait before they make a decision to repurpose or tear down or sell?
I too would be interested to know what current owners are thinking. A couple of years back I had looked into the possibilities for office conversions and had a conversation with a VP at Strategic about office conversions in general. At the time, it was a challenge for most buildings with the exception of smaller older buildings. The numbers didn't quite make sense for larger newer buildings for a few different reasons.
- Larger floorplates were harder to work with in an efficient manner
- The whole office vacancy situation was different back then, as landlords were still feeling that it was going to turn around, and were holding their ground, which was keeping it from being financially viable at the time.
- Building codes are one of the things that make conversions difficult for buildings of any size or age. If they can be altered or made more flexible, it could make a difference.
- HVAC and plumbing are generally a challenge, especially HVAC and the system has to go from a building wide system to system for each unit. Plumbing and electrical is like that also, but much easier to deal with.
My own personal feelings are that, things can and will change if they haven't already. Some of the challenges mentioned may be winnable now.
- Landlords are definitely looking at these assets differently now, as the long term outlook is less promising and it could be enough to spark in interest in more conversions.
- Larger floorplates are less efficient, but if the value of the space has gone way down, it's probably more viable to convert using larger less efficient spaces.
- Same thing for HVAC\Plumbing\Electrical. If you're dealing with a lower number of units, it becomes less challenging.
- Building codes? Might not change depending on the code - are some of the codes ones that aren't really that important but nobody has ever bothered to try and change them? or are they codes that absolutely have to stay as they are? Either way more of an administration thing and could possibly be changed.
I look at a building like Nexen which is empty, and wonder if it would be better to rip the floors out back to building base and sell the space off as loft space? This is a very simplistic comparison and doesn't include all the variables, but if they sold the space at $200 per sq ft, it would be the same revenue as renting it for $20 per sq ft for 10 years. It's unlikely they'll rent a full building for that price over the next 10 years, so maybe it makes sense to sell it in chunks. There is approximately 13,000 sq ft of usable space per floor at Nexen. Divide each floor into... say 5 units and sell off as a basic loft space with only the walls between units, and roughed in plumbing and electrical panel to each unit. Would someone be interested in spending 400K on a 2000 sq foot loft space? I think there are people around who would be.
