From Office Spaces to Vertical Communities: The Urban Evolution Unveiled

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Episode Transcript:

Today, we're diving into the evolving landscape of urban downtowns, a transformation few anticipated before the pandemic hit. The once vibrant central business districts, humming with activity and brimming with fully leased office spaces, now find themselves entangled in a loop of challenges.

As cities grapple with soaring office vacancies and an array of hurdles, it's time to ponder a reimagination of their underused building stock. A novel idea gaining traction envisions a radical shift in the purpose of towering office structures. Instead of passively waiting for office occupancy to return to pre-pandemic levels—something that might take years or may never fully happen—a potential solution emerges: the retrofitting of these buildings into mixed-use "vertical neighborhoods."

Doug Hayden, co-founder, president, and chief strategy officer of startup Arthrotó, sheds light on this innovative approach. Arthrotó, with roots in Canada and a wholly owned U.S. subsidiary in Dallas, aims to assist building owners in converting underutilized office spaces into high-demand residential and other assets, employing prefabricated interior modules.

Hayden emphasizes the advantages of this approach over conventional construction methods. He sees a significant opportunity in converting only a portion of office buildings, especially those operating at significant vacancies. These "zombie buildings" could be revitalized, injecting life into both the properties and surrounding neighborhoods.

Calgary, Alberta, Arthrotó's hometown, embraced this conversion idea when its downtown faced a downturn due to a slump in the petroleum industry. Traditional conversion methods, rife with challenges from a shortage of skilled workers to sustainability concerns, led Arthrotó to strategic partnerships, including one with prefab pioneer Dirtt.

Geoff Gosling, co-founder of Dirtt, explains how prefabrication adds flexibility to conversion projects. It allows cost-efficient installation of factory-built residential units, offering scalability without the need for a complete building overhaul. Gosling emphasizes the speed and adaptability of prefabrication, aligning well with Arthrotó's less disruptive construction approach.

Spencer Marks, Arthrotó's co-founder and chief operating officer, highlights the de-risking aspect of their execution. Moving most fabrication to a controlled factory environment ensures a consistent experience, minimizing on-site disruptions for tenants and neighbors.

While prefabrication brings precision to office conversions, it's far from a one-size-fits-all solution. Gosling notes that residential modules can be customized in the factory and adjusted post-installation to meet evolving needs. Eric Lieberman, executive vice president of government relations and development for Arthrotó, points out that prefabrication can navigate regulatory obstacles, urging local governments to adapt to newer, more sustainable building methods.

Doug Hayden will be sharing more insights at Bisnow’s Chicago Repositioning and Conversions Summit, emphasizing the need for updated regulations to embrace innovative solutions like Arthrotó's. This not only aligns with the shifting landscape of urban real estate but also addresses pressing environmental concerns, making it a win-win for REITs and large building owners facing increasing pressures on ESG targets.

This is Tyler Cauble, Signing off