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Inside Innovation: Under-utilized commercial space is under pressure to innovate and repurpose

John Bleasby
Inside Innovation: Under-utilized commercial space is under pressure to innovate and repurpose

What is to become of vacant and under-utilized retail and commercial spaces across Canada created by the impact of COVID-19? It’s an unavoidable dilemma for owners and landlords and one that affects the building industry.

“When do you get to the point when you realize you need to make a change?” asks Altus Group director Alan Waggoner. In particular, he points to declining cash flows and changing market conditions affecting the success of older assets.

Small businesses are already struggling as government-mandated shutdowns roll across the country once again. However, even big box stores are witnessing a decline in activity. Curbside pickup simply can’t make up for the loss of business when customers can no longer roam the aisles and turn instead to the internet.

Creativity and a willingness to adapt will be required by all parties as new commercial retail projects fade from the drawing boards.

This brings to mind the idea of converting big box stores into warehouses and last-mile shipping destinations. Even older buildings with low ceilings can find new life in the fast-growing self-storage sector. Some believe that, in addition to large existing structures finding new purposes, traffic levels and pollution emissions can be reduced.

There are zoning issues to consider, not to mention opposition from neighbouring businesses who may view a faceless warehouse as a poor substitute for a wide open, friendly retail outlet.

At the same time, municipalities are always looking for tax revenue. Some may be willing to entertain the notion of “upzoning” — changes that permit more density and taller buildings as an infill solution for urban locations. Apartment buildings are a good example.

Waggoner explains that converting any space from retail to a new purpose will be challenging, given that the obvious alternatives like the hospitality, restaurant and office sectors also face low utilization and repurposing restrictions.

“Zoning change can change the whole character of a neighbourhood,” he says. He suggests the engagement of professional advisory services before any decisions are made.

Owners of existing taller buildings, such as hotels that have been hollowed out by dwindling numbers of tourists and business travellers, might consider what Hilton Hotels is undertaking: repurposing hotel rooms as temporary office spaces.

WorkSpaces by Hilton offers, “a clean, flexible, and distraction-free environment for productive remote working,” that includes basic amenities like a spacious desk, ergonomic chair and enhanced WiFi. The company says these modified spaces offer privacy, flexibility and cleanliness. It may be only a short-term solution for a short-lived challenge during the pandemic, but it’s one that is being considered by other hotels chains in North America.

For existing commercial office spaces in urban cores, a holding pattern strategy of waiting the virus out may not be a financially viable option. The term “Office-pocalypse” has crept into today’s real estate lexicon, reinforced by predictions from Global Workplace Analytics that up to 30 per cent of the workforce will continue to work from home at least until the end of 2021. Market demands and pandemic realities may force changes on the office sector.

For example, reduced office use and increased work-from-home trends have spawned the conversion of office buildings into housing, something now underway in North American downtowns like Baltimore, Chicago, Miami, Boston and Houston.

However, it’s not all bad news for the office. While urban cores may remain under pressure, suburban offices with their shorter commutes and lower land costs may do quite well over time.

As the New York Times points out, overall demand for office space may decline and result in fewer new construction projects for the building industry. Yet the future may see more of a reshuffling of requirements.

“Most office activity will not move to homes or to the cloud. Instead, it is likely to be redistributed within and between cities, with a variety of new employment areas popping up and saving many people the trouble of simultaneous commuting to a central business district.”

John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Inside Innovation column ideas to editor@dailycommercialnews.com.

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