Work to convert old warehouse space in three adjoining buildings in Canal Park into 23 market-rate apartments is set to begin next month.

The move by owner Sherman Associates comes as the dire need for market-rate housing to support job growth underway in Duluth was stressed in a recent housing study.

The local study by Maxfield Research Inc. reported that Duluth needs to add 180 units of market-rate rentals in each of the next six years to support the city’s growing professional and skilled workforce.

“It’s a good start,” Chris Eng, the city’s business and economic development director, said of the project. “If there were 10 developers like George Sherman who would each do 23 units, it would get us a little bit closer. Every step helps.”

Plans are to convert the second and third floors - totaling 23,000 square feet - of 302 to 310 S. Lake Ave. into contemporary loft-style apartments.

“They’ll be upscale, compared to what we have in Duluth, but not over the top, not luxury apartments,” said Kathy Marinac, a commercial real estate manager for Sherman Associates.

The studio, one-bedroom and two-bedroom units will feature exposed brick and stone walls that date back to the 1880s, high ceilings and tall windows.

“They will use as much of that as they possibly can so it has a unique feel to it,” Marinac said.

The buildings’ street level will continue to be occupied by restaurants and retail. Currently Canal Park Liquors is at 302 S. Lake Ave., and Grizzly’s Wood-fired Grill is at 310.

“That will always continue to be retail,” she said of the first-floor space. “That’s an important component of the project.”

Next month, a new restaurant, Cloud 9 Asian Bistro, will open at 308 S. Lake Ave., in space formerly occupied by Thai Krathong restaurant, which closed last fall.

“We were going to carve the second floor into office space,” Marinac said. “But in the past year, the landlord decided it would be a great space for apartments.”

While the third-floor warehouse space was undeveloped, part of the second floor housed six tenants, including an artist, interior designer, the Teeny Weeny Miniature Cottage store and the now-closed Duluth-Superior Magazine. The tenants were served notice of the plans around Nov. 1. All had moved out by mid-March.

Construction is expected to begin in June and take six to eight months, with completion early next year. If work stays on schedule, applications for leasing units will start being accepted in the fall, Marinac said.

The project cost wasn’t available, but Marinac said it is a “very large investment” for the company.

With much of Duluth’s professional job growth downtown, the demand for the apartments is there. Barr Engineering, with its growing staff, has moved in across the street from the Sherman project. Enbridge Energy, LHB, Lake Superior Consulting and Maurices’ corporate headquarters are all downtown and growing.

As people come to Duluth for those jobs, they initially want apartments near their downtown workplaces, Eng said.

But while there are luxury condominiums and apartments downtown, and subsidized low-income apartments, there are not a lot of market-rate rentals.

“We definitely could use more downtown,” Eng said.

Sherman’s Minneapolis-based property development company also is behind the planned renovation of the Norshor Theatre, and it built the Sheraton Hotel in downtown Duluth. It also owns the building at 340 S. Lake Ave. that houses Green Mill with six rental apartments above it. And the company plans to create offices and 50 apartments at the former Lincoln Park Middle School in Duluth.