Too many offices in Edmonton’s government district see developer get creative

The Financial Building nestled in Edmonton’s government district was once bustling with downtown workers.

But when six floors of provincial government employees moved out, Stromiga Inc. couldn’t find new tenants and the offices sat empty for two years. Ronald Benjamin, the vice-president of the development firm, decided to convert those floors into apartments in 2018.

Since then, that trend has only continued, with the Financial Building losing tenants like the Workers Compensation Board as well. 

It’s part of a shift happening that’s driven by demand for housing, more people working from home and a glut of commercial space in the area.

“The biggest change occurred during the pandemic,” Benjamin said.

“Especially government workers — [they] haven’t come back to the office. So that’s made this area really quiet compared to what it used to be.”

The owners of Filistix, a previous commercial tenant in the building, opted to close their downtown location in December, citing a lack of workers in the area that had formed their customer base.

Those conditions incentivized Benjamin to convert two and a half more floors of the building into residential space for an estimated cost of $5.5 million. And if the existing commercial tenants move out, he plans to convert those too.

Mark Anderson, managing director at the real estate firm CBRE Edmonton, said that along with the work-from-home paradigm shift, the real estate sector has also seen a trend that he describes as a flight to quality, as excess office space means companies are often choosing to move into newer spaces.

“A lot of tenants are actually choosing to locate in the financial sector where there’s been some quite big investment recently over the last number of years — things like Ice District and other private sector investment,” Anderson said. “That has really attracted the lion’s share of the tenants.”

He said it means a “double whammy” for the government sector, which makes up one-third of the downtown office inventory.

“When you see such a large push to kind of work from home and you see that office presence shrinking, … it’s atrophy for the rest of the market.”

Work from home

CBC asked several organizations in the government district about the return to work and use of office space.

The Alberta government said it does regular reviews to see how its office space is used and continues to search for ways to reduce the amount of office space it leases.

Most government workers continue to be allowed to work from home for up to two days a week.

“Hybrid work arrangements are only available to employees where it is operationally feasible and does not pose a risk to maintaining effective and efficient services to Albertans,” a spokesperson for the office of Treasury Board and Finance said in an email.

“This is a provincewide policy with less than half of all employees participating

WCB did not provide occupancy rate or work from home data but did say there are no major building changes planned.

“All of our team members spend time in the office,” the statement read. “Each work area has different business requirements and, because of that, we have various work models in play.”

Alberta Health Services also did not provide any information about work from home policies, but said space planning is underway amid health-care restructuring.

Alberta Blue Cross said it has embraced a full hybrid work model, with no set number of days employees must work in office.

For Benjamin, residential conversion is just one piece of the puzzle for revitalizing the area.

“I think coming back to work is big,” he said. 

“When people are downtown, they also shop downtown, they eat at restaurants downtown.”

Making the math work

Benjamin also acknowledged that conversions are hard to pull off — a residential building is harder to manage and the increasing cost of construction is only making tight profit margins thinner.

Both Benjamin and Anderson agreed that the math makes more sense in a city like Calgary because of a city program that gives financial incentives to flipping office space.

Despite those challenges, Benjamin said the 1950s building is worth saving.

“It’s still a beautiful, usable building,” he said. “And to be able to preserve it and use it for another use, I think is valuable, even if the economics is not a home run.”

And with no shortage of people looking for housing, Benjamin expects the residential spaces to be fully rented when complete.