The somewhat scary vision of Toronto’s not-so-distant future has been thoughtfully provided by real estate services firm Ashlar Urban Realty Inc. The firm’s office leasing team has created a new building stacking plan that illustrates just how many floor plates are sitting empty, even if they currently exist only as developer blueprints.
The 10 buildings range from the nearly or just-completed to a couple with a completion date still pending.
The furthest along is the 746,898-square-foot MaRS Discovery Centre, which had a projected completion date of November 2013. Major tenants include Public Health Ontario, which has taken up the top four floors of the 20-storey building, and the Ontario Institute for Cancer Research, which has leased two floors, according to Ashlar Urban’s document.
Owners of that University Avenue tower have to be happy it’s ahead of the rush represented in the other nine buildings in the construction process although it looks like there are plenty of floors to fill.
Four million square feet still unleased
According to Ashlar Urban’s data, the 10 buildings have about four million square feet of space that is not yet leased – at least officially. It is likely most if not all of that brand new space will find tenants, most of whom will likely move out of other class-A space in the city’s core.
It is as if 10 trophy towers have begun sprouting in Toronto’s downtown without anyone noticing.
“I think everyone is surprised. It is a sudden influx and it is a lot,” said Joel Goulding, a sales representative with Ashlar Urban.
“It will be interesting to see this happen. Obviously everyone has their own ideas as to where it is going to go, where people are going to go and where companies are going to go. But there is definitely a lot of space coming up.”
Goulding said the building boom can be chalked up to the urban intensification trend that has seen employers embracing the notion they have to be where their workforce wants to work and play. Developers, for their part, have been willing to play along.
“Companies are building clean, efficient buildings to attract the new young workforce that is coming out of university and everyone wants to live downtown and work downtown, the whole ‘live, work, play’,” he said.
“So I feel like there is not going to be much of an issue with filling them. It is potentially the issue of what is going to happen with the prices of the older buildings and what is going to happen with tenancies of the older buildings.”
He expects 2015-’16 will be memorable for the real estate community as the owners of the new buildings work to fill them and operators of existing downtown towers scramble to backfill after taking stock of what they have lost.
The firm’s stacking plan is not exhaustive, said Goulding. There are a few smaller buildings planned and the plan was created before details were released on the $1.4-billion, seven-building mixed development slated for the current home of the Globe and Mail dubbed “The Well.”
Ashlar Urban has also recently created a similar stacking plan for Toronto’s Bloor Street area to get a better sense of that area’s vacancy situation.
How much space?
While the scale of the Toronto tower building boom has caught some by surprise, there had been warnings of tough times ahead.
A recent report from Cushman & Wakefield suggested vacancy rates could jump to seven per cent by the end of 2014 from the 4.7% vacancy rate at the end of September.
The report said about 5.1 million square feet of new office space is being built in downtown Toronto and that 1.6 million square feet will become available by the end of 2014.
“I know that everyone has bravely put on faces in the past about absorption and what is going to happen with the existing product – we are a little less optimistic,” said Craig Smith, president of Ashlar Urban.
“The class-As are the ones that are going to get hurt, as well as the A-minus because what they are doing is raiding the trophy towers. The older product, Commerce Court, TD Centre, Royal Bank, they are all being vacated for the newer, more attractive, both green and efficient buildings.”
He added that the graph of buildings yet to come only shows part of the Toronto office story. “Wait until you go and look at what is for sublease. When you see the sublease available, there is probably six million feet out there.
“The real story there, and I’m assuming vacancy is probably around 7% today – it is my guess – it is where it is going to be.”
The underlying and underreported story for Smith is how tenants are getting much more efficient at using space. He provides the example of law firm Goodmans LLP which moved out of an 180,000-square-foot facility and into a space of 150,000 sq. ft.
“Everybody is getting much more efficient. So six million feet is actually exponential growth because typical space per person is probably 150 feet per person, it used to be 250,” said Smith.