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REAL ESTATE

Downtown office tower owners opt for a change of space

AUGUST 2019

With demand for rental housing in the city centre spiking, more and more commercial landlords are choosing to spend big bucks on transforming aging office towers into state-of-the-art rental accommodations

OBJ.CA

18 District Realty is converting 170 Metcalfe St. (left) into rental housing. PHOTO BY MARK HOLLERON

BY DAVID SALI

david@obj.ca

T

he website for Ottawa’s trendiest new university residence neatly sums up what prompted Gatineau-based developer Katasa Group to buy an empty former government office tower at the corner of Rideau Street and King Edward Avenue, tear its guts out and remake it into an upscale dormitorium. “I’ve restored what was a basic and run down building and turned it into a unique and modern home for university students from all over the world,” the soon-to-be-opened Th​éo residence says as it answers the question “Who Am I?” Katasa’s decision to personify its newest development project is just one way it ventured a little outside the box when it jumped into the city’s growing market for privately run student housing. The firm’s ambitious choice to convert the 11-storey Constitution Building, a drab, 1960s-era government office tower once occupied by the Department of National Defence, into a state-of-the-art residential complex is the latest example of a new construction trend in downtown Ottawa: Builders gutting outdated office buildings and spending millions to transform them into rental apartments. As construction waves go, it’s more of a ripple, but real estate observers say it’s gaining momentum. In addition to Katasa’s project, District Realty has done its own conversion of office space into apartments at 169 Lisgar St. and is set to open the doors to another office-turnedrental building at nearby 170 Metcalfe St. later this year. Across the Rideau River in Vanier, Bona Properties has launched a full-scale renovation of a former federal

government office tower at 25 McArthur Ave. with the aim of turning it into apartments as well. Earlier this year, InterRent REIT, a local firm that specializes in developing and managing rental apartments, bought the 49-year-old Trebla Building at 473 Albert St. ​– a clear sign the 11-storey tower’s days as a commercial space are over. “They are few and far between, but they’re slowly creeping up more and more,” Emily McClelland, a commercial real estate adviser at the Ottawa office of Colliers International, says of officeto-residential conversions. “People are kind of seeing the opportunity there to convert these buildings.”

TARGETING NEW TENANTS In many ways, she says, it’s really a tale of two vacancy rates. At the same time as demand for reasonably priced rental housing in the downtown core continues to rise, more and more owners of “functionally obsolete” Class-C office space are hunting for new ways to get more bang for their tenant buck. One way is to invest capital they once would have poured into upgrading space for commercial tenants and using it to refurbish the buildings completely to target a whole new market of residential renters instead. “If you can spend that same money and convert it to a residential (building) which is a lower cap-rate product, I think there’s a huge opportunity there,” McClelland says. District Realty kickstarted the trend when it gutted former commercial space at 169 Lisgar and rebuilt it as an apartment complex four years ago. “At the time, some would have said it was a big risk,” says District Realty CEO

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Ottawa Business Journal August 2019  

Ottawa's authoritative source of business news, covering tech, tourism, real estate and other key economic sectors in Canada's capital.

Ottawa Business Journal August 2019  

Ottawa's authoritative source of business news, covering tech, tourism, real estate and other key economic sectors in Canada's capital.