Across Canada, a quiet transformation is reshaping the commercial real estate landscape and potentially unlocking a creative solution to the country’s chronic housing shortage. Empty department stores, struggling suburban malls, and vast underutilized parking lots are increasingly becoming the foundation for mixed-use communities, purpose-built rental housing, and affordable residential developments.

For Ladan Hosseinzadeh Sadeghi, President and CEO of Sky Property Group Inc., this shift represents more than a strategic investment opportunity. It reflects a broader evolution in how urban land is viewed and utilized.

“We have spent decades building out in every direction, and now we are sitting on enormous tracts of underutilized commercial land in the most desirable, serviced parts of our cities,” says Hosseinzadeh Sadeghi. “Adaptive reuse isn’t a workaround, it is one of the most pragmatic and responsible paths forward for housing supply in Canada.”

Retail-to-residential conversions in Canada are therefore attracting growing attention among developers, planners, and policymakers seeking to address both housing supply constraints and changing retail real estate dynamics.

A National Opportunity Built on Vacant Square Footage

The scale of the opportunity is significant. Over the past decade Canada has lost hundreds of department stores and major anchor tenants. The shift toward e-commerce played a major role, and the COVID-19 pandemic accelerated many of those changes.

As a result, retail vacancy rates remain elevated in several suburban markets. Industry observers estimate that millions of square feet of commercial space across the country sits dormant or is underperforming.

Many malls that were once anchored by retailers such as Sears, Target, and Hudson’s Bay now face uncertain futures. Yet these sites retain a valuable advantage. They occupy large parcels of fully serviced land with established infrastructure including roads, transit access, water, sewer, and electrical systems.

“When I look at a struggling suburban mall, I see fully serviced land in an established neighbourhood,” says Hosseinzadeh Sadeghi. “That is incredibly rare in any major Canadian city today. The infrastructure is already there, water, sewer, roads, power. The community is already there. What’s missing is vision and political will to rezone and redevelop.”

This dynamic is helping position retail-to-residential conversions in Canada as an increasingly viable redevelopment strategy.

The Economics Behind Adaptive Reuse

Adaptive reuse refers to the conversion of existing buildings or redevelopment of underutilized sites for new purposes. In the retail sector, this often involves transforming aging commercial properties into residential communities or mixed-use developments.

Unlike office-to-residential conversions, which can face structural limitations such as deep floor plates and mechanical constraints, large-format retail spaces and expansive parking lots often offer more flexibility. Developers can either retrofit portions of existing structures or demolish them to unlock redevelopment potential.

Some projects involve converting former retail interiors into residential lofts, co-living communities, or public service hubs. Others involve demolishing aging retail boxes entirely and constructing mid-rise or high-rise residential towers on the underlying land.

In many cases the economics benefit from existing infrastructure. Land servicing, road access, and utility connections are already in place, reducing the costs associated with greenfield development.

Cities including Calgary, Edmonton, and Ottawa have already seen examples of retail site redevelopment emerging from former big-box retail properties. Municipal planning frameworks are also evolving to encourage this approach.

Calgary’s City Centres policy, for example, promotes the transformation of underperforming retail corridors and malls into dense, walkable neighbourhoods. The city’s commitments under the federal Housing Accelerator Fund have further reinforced the direction toward intensification and redevelopment.

“What Calgary has shown is that when the political framework is aligned, when municipalities are willing to rezone quickly and incentivize adaptive reuse, the private sector responds,” says Hosseinzadeh Sadeghi. “The federal Housing Accelerator Fund was a step in the right direction. We need more of that alignment between all levels of government.”

Zoning Reform as A Critical Enabler

Despite the growing interest in redevelopment, zoning remains one of the most significant barriers to retail-to-residential conversions in Canada.

Historically, commercial properties have been zoned exclusively for retail or commercial use. Changing that designation often requires lengthy municipal processes that include community consultation, planning reviews, and political approvals.

Hosseinzadeh Sadeghi believes streamlining these processes will be essential if adaptive reuse is to meaningfully contribute to housing supply.

“We cannot afford, as a country, to leave viable development sites locked in outdated zoning categories while families are living in substandard housing or paying half their income in rent,” she says. “Every abandoned parking lot next to a subway station is a policy failure. It doesn’t have to be.”

Several provinces are beginning to move toward policies that support greater flexibility in land use.

Ontario has introduced legislative changes aimed at increasing density around major transit station areas. British Columbia has also enacted broad upzoning reforms designed to accelerate residential construction.

Hosseinzadeh Sadeghi suggests that the next step could involve municipality-wide reviews of commercial land. These audits would identify underperforming retail sites that could be suitable for residential intensification.

Mixed-Use Communities as The Preferred Model

The most successful redevelopment projects do not simply replace retail with housing. Instead they integrate multiple uses to create vibrant and resilient communities.

Former mall sites, for example, may be reimagined as mixed-use districts that include ground-floor retail and services, grocery stores, residential rental units, condominiums, green spaces, and community amenities such as childcare centres or healthcare facilities.

“Mixed-use is not a buzzword, it is what communities actually need,” says Hosseinzadeh Sadeghi. “When we design for a single use, we create fragile environments. When we design for 24-hour life, where people can live, shop, work, and socialize within walking distance, we create resilience. And we create value.”

Developers pursuing retail-to-residential conversions in Canada increasingly view this layered approach as essential. Mixed-use development can help maintain retail activity while simultaneously introducing new housing supply.

Environmental Benefits Strengthen The Case

Beyond housing and economic considerations, adaptive reuse also presents environmental advantages.

New construction carries significant embodied carbon, referring to the greenhouse gas emissions associated with producing building materials and transporting them to construction sites. Reusing existing structures or redeveloping already-disturbed land can reduce a project’s environmental footprint.

“From a sustainability standpoint, the most environmentally responsible building is often the one that already exists,” says Hosseinzadeh Sadeghi. “When we can reuse, retrofit, or redevelop on already-disturbed land, we are making a climate decision as much as a housing decision.”

Lifecycle carbon analysis is becoming increasingly important within the green building sector. Institutional investors with environmental, social, and governance mandates are also paying closer attention to projects that demonstrate measurable sustainability benefits.

Adaptive reuse and retail site intensification often perform favourably in these assessments.

A Call for Coordinated Action

While interest in redevelopment is growing, Hosseinzadeh Sadeghi believes the true potential of retail-to-residential conversions in Canada will only be realized through coordinated action.

Federal housing programs, municipal zoning reforms, and private investment must work in tandem to accelerate redevelopment. Developers must also collaborate with community groups to ensure projects deliver both economic value and local benefits.

“The sites exist. The demand exists. The capital exists,” she says. “What we need is alignment, and the courage to move quickly. Canada’s housing crisis is not waiting for a perfect plan. We have to act with the tools we have, on the land we have, right now.”

Retail-to-Residential Conversions Gain Momentum in Canada by Lee Rivett | R-I Retail Insider