At ATB Economics, we’ve been talking a lot about residential real estate. But what about offices? I work in an office downtown, but I don’t know that much about the office segment of the market.

To help me out, I sat down with a friend and colleague. Krista Lauridsen is Head of Real Estate, Facilities, Design & Construction at ATB Financial. She is also a Registered Architect, AAA, and winner of Top 40 under 40 in Calgary Avenue Magazine in 2023. From designing workspaces to negotiating new leases, Krista Lauridsen lives and breathes space. If you know Krista, you will know space is her passion.

Our conversation took a number of turns - from discussing why office vacancies are so high, the role of hybrid work, and how this links to building vibrant communities. We even found some common ground on one of my favorite topics - productivity!

More than just empty buildings

Downtown Calgary continues to see some of the highest office vacancy rates in North America, currently hovering around 30%, with Edmonton’s downtown at nearly 20%.

Krista notes that it’s important to think of the implications and indicators beyond the actual vacancy rates in our major cities: 

• We’re also monitoring something called ghost vacancy - spaces that are being held under lease, but unoccupied or sitting vacant, and not on the market;
• We anticipate next to no new office buildings coming on the market anytime soon, and with that we’re seeing landlords investing in renovations of older assets to attract new tenants, which is great for sustainability; 
• With increased downtown vacancy rates post-Covid, the knock-on effect has been a shift in non-residential property tax burdens outside of the core.

Why these trends, and overall vacancy, really matter, is because downtown cores are both the economic engines and cultural hearts of our cities, according to Krista. This means that spaces sitting vacant are a collective challenge, and as a result we’re seeing the real estate industry coming together to identify opportunities for community-centered solutions.

Hybrid is here to stay

At ATB Economics, we’ve been monitoring two trends closely that are related to continued office vacancy rates: migration to Alberta and the province’s rapid population growth, as well as the continued shift to hybrid work, specifically for those who live in the province but may work for an out-of-province employer. 

The rise of hybrid work is arguably the most significant driver of the transformation of office spaces and downtown vacancies, and we have to recognize that hybrid work is here to stay, says Krista. Our opportunity now is to engrain hybrid in a sustainable way, with research showing that the hybrid is actually the sweet spot for productivity, with many employers reporting greater productivity from hybrid, over either fully remote or fully in-person.

However, the reality is that the hybrid model continues to present both challenges and opportunities for employees and businesses. 

For employees, the flexibility of a hybrid schedule is a significant benefit; Krista pointed to research that indicates workers perceive it as equivalent to a roughly 10% pay increase. In some sectors, like technology, employees have shown a willingness to accept a lower salary for the ability to work partly or fully remote.

For organizations, the benefits are equally compelling. Krista notes that companies implementing hybrid models have reported reducing their workspace costs by as much as 40%.

Krista says that the challenge lies in the continued necessary cultural shift, moving away from the expectation of a traditional dedicated desk or office space for employees that is leading to empty spaces lacking vibrancy or asset performance, and instead shifting to a sustainable model that involves challenging traditional systems, leadership expectations to results-orientated measures of work that are backed by trust, coupled with innovation in how we use physical spaces.

What’s next: Adaptive reuse and revitalization of downtown space

If hybrid work is here to stay, what will ultimately drive down our vacancy rates? Krista talked about inspiring examples of how vacant office buildings can be reimagined to address not only the vacancy issue but also larger societal opportunities. 

Residential Conversions - The City of Calgary's grant program, offering developers $75 per square foot, has been a game-changer. With nearly 20 projects approved, the city is set to remove over 2.5 million square feet of office space from the market, creating more than 2,500 new homes. In a province experiencing significant migration we’ve mentioned, this is a powerful solution to both the office vacancy and housing affordability challenges.

Education hubs - The University of Calgary’s School of Architecture, Planning and Landscape will be housed in the former Nexen building downtown, bringing 1,200 students and faculty to the west end, creating a dynamic campus environment.

Urban innovation - In Edmonton, the former downtown YMCA is being converted into 90 units of affordable housing through the Williams Hall project, tackling a critical need while revitalizing a vacant building. We're also seeing innovation in food security, with projects like the 65,000-square-foot vertical farm in the Calgary Tower building. This addresses supply chain vulnerabilities, and brings food production into the urban core.

Cultural and community spaces  -  The transformation of Calgary's historic Fire Hall No. 1 and the North-West Travellers Building into an arts and culture hub by cSPACE is another stellar example of how underutilized buildings can be given new life, enriching the city's cultural landscape.

While high downtown office vacancy rates represent an economic challenge for Alberta, the opportunity now is to fundamentally shift how we think about, and plan for, working, living, and building the urban cores moving forward, and reimagine how we can innovate Calgary and Edmonton’s economic and cultural centers.

Closing thoughts

I’ll be honest: Before I started the conversation with Krista, the issue of high office vacancies seemed daunting. But by the end, I felt inspired. Workplaces are evolving and cities are coming up with innovative solutions to the challenge.

More than that, Krista has made me appreciate how important space is to our everyday experience at work. If you get the space right, I’m convinced after talking to Krista that team members will be far more engaged and productive.

Before I let Krista get back to her busy day, I had to ask one more question - what are you most proud of?  Always humble, Krista talked about the recognition her team received for their groundbreaking ideas brought to life in ATB’s workplaces and their thought leadership around the future of hybrid work environments. 

Thank you Krista for sharing your insights. I hope you enjoyed the conversation as much as I did!  

You can watch our full conversation here.

Answer to the previous trivia question: Interprovincial migration to Alberta is very seasonal. Over the last decade, Alberta saw the largest level of  in-migration in the second quarter.

Today’s trivia question: How many square feet is Canada’s largest vertical farm facility?