Office conversions are starting to make inroads in Halifax, says a CBRE report.

“A trend of flight-to-quality persists as tenants are demanding more from their office spaces, opting for prime, high-quality, and highly amenitized offerings,” says the commercial real estate services company in its quarterly office update. “This bifurcation is proving difficult for older product with less efficient floorplates and higher operating costs. As a result, conversions have started to gain traction, in both downtown and suburban submarkets, with owners choosing to repurpose older, underutilized office assets to vibrant multi-family residential buildings.”

The situation in Halifax appears to differ with the office-conversion movement in many other Canadian markets.

Investors and developers have displayed appetites for conversions in Calgary, where a municipal government downtown incentives program has spurred them. But investors and developers have cited differences between office and multi-family building structures as barriers to conversions in other major markets.

During the Vancouver Real Estate Forum, Paul Morassutti, CBRE’s chairman, said conversion projects are in danger of being relegated to the margins if governments do not provide more financial support for them. And, a recent Colliers report indicated that conversions are unlikely to occur en masse in Vancouver due to the region’s relatively strong office market and limited demand for them

In the first quarter of 2024, the Halifax office market saw negative net absorption for the first time since the first quarter of 2022 after seven consecutive quarters of positive absorption. The downtown office core recorded 24,060 square feet of negative absorption among all asset classes; however, the suburban market recorded positive absorption of 8,613 sf, posting an increase for the fourth straight quarter.

Overall Halifax office vacancy remained unchanged at 14.1%, the lowest level since 2015. Sublease vacancy declined 180 basis points quarter-over-quarter, the biggest drop since 2021, to 5.7%.

Downtown and suburban net asking rents dipped $0.11 and $0.15 per square foot, respectively, quarter-over-quarter.

Image: CBRE