Dream Industrial: 10 Years of Growth, More to Come

Dream Industrial REITchief executive officer Brian Pauls and members of his team rang the bell to open the Toronto Stock Exchange on Sept. 26 and mark the trust’s 10-year anniversary.

Pauls, who assumed his role on Jan. 1, 2018 after leaving a senior executive role with Denver-based real estate firm PaulsCorp, recently spoke with RENX about Dream Industrial’s growth through its first decade as well as its strategies and outlook.

Pauls said Dream Industrial had a market cap of about $800 million and close to $1.5 billion in assets when he joined. Those figures are now approximately $2.82 billion and $7 billion, respectively.

“We’ve got a great team that can identify opportunities in value and a team that can unlock that value,” said Pauls, who noted that has also garnered great investor support.

“We’ve grown our funds from operations, we’ve grown our total portfolio size and we’ve enhanced our yields just through creating value for the properties we have, as well as identifying new opportunities that have been created for the REIT.”

Dream Industrial’s evolution and growth

Dream Industrial has added density to existing properties and undertaken greenfield development in Canada, the U.S. and Europe.

As of June 30, it owned, managed and operated 257 industrial assets comprising approximately 46 million square feet of gross leasable area. In-place and committed occupancy was 99.1 per cent on that same date.

Sixty-two per cent of Dream Industrial’s portfolio is in Canada, largely in Greater Toronto, Greater Montreal and Calgary.

However, it elected to expand into the U.S. almost five years ago to create scale and access more markets and liquidity — which couldn’t have been achieved by remaining solely in the Canadian market.

The American strategy is to pursue long-term growth alongside institutional partners through a retained 25.35 per cent interest in a private open-ended U.S. industrial fund.

A subsidiary of the trust provides property management, construction management and leasing services to the fund at market rates.

“We’d like to see that fund grow and our participation in that continue to grow,” said Pauls.

Dream Industrial’s European expansion was enabled by Blackstone’s late 2019 acquisition of all the subsidiaries and assets of Dream Global REIT for $6.2 billion.

Much of the Dream Global team moved to Dream Industrial and hit the ground running with a pipeline of deals and opportunities that were previously exclusive to the Dream Global platform.

The European portfolio is primarily located in the Netherlands, Germany and France.

Diversification is valued

The move also enabled Dream Industrial to access European-denominated debt, which was quite a bit cheaper than North American debt, and to diversify its risk.

“Now we’ve got a risk profile that spreads across many tenants, many geographies and even different product types,” said Pauls.

“We have urban logistics, which would be considered last-mile properties. We’ve got large distribution facilities and then we’ve got light industrial and light manufacturing, where there’s a lot of tenant investment in those properties.”

Canadian urban logistics properties are the hottest asset class in the portfolio at the moment, according to Pauls, as that is where Dream Industrial sees the highest rent growth, replacement cost and barriers to entry. Such properties in the Greater Toronto Area (GTA) are where it has the highest opportunities for mark-to-market rents.

Development remains important

Dream Industrial prefers to allocate five per cent of its balance sheet to development, which gives it an opportunity to increase yields and create product it otherwise may not have been able to buy.

Pauls said development yields are in the six per cent range, while yields on intensifying properties the trust already owns are in the high single digits. Both numbers are higher than for buying income-producing properties.

Dream Industrial’s net debt-to-asset ratio is under 30 per cent, but Pauls said it would be happy if that number was in the mid-to-high-30s.

Dream Industrial identifies opportunities to recycle assets within its portfolio and reinvest the proceeds into higher-quality properties that are less management- and capital-intensive.

Unit prices are undervalued

There’s a significant disconnect between the valuations of private and publicly owned real estate companies at the moment, as Pauls said the public markets tend to move on momentum and create a herd mentality.

Dream Industrial’s stock price closed at $11.02 on Oct. 5, not too far off its 52-week low of $10.34 and well below the 52-week high of $17.60.

Pauls sees buying Dream Industrial units as a great opportunity to acquire ownership in quality real estate at below replacement cost and net asset value.

“I feel passionate that we’re undervalued,” said Pauls. “What we’re trying to do is run the company well, deliver good results, create value every day and do the best we can from an operations and management standpoint.”

Unlike some other REITs, Dream Industrial hasn’t bought back any of its own units because it’s using capital for development and intensification.

During the second quarter, construction began on a 154,000-square-foot ground-up development in Caledon in the GTA and a 120,000-square-foot expansion in Montreal.

Dream Industrial is under construction on more than 680,000 square feet of projects across Canada and Europe and is in the final stages of advancing the construction of 800,000 square feet of projects in the near term.

The trust’s development and expansion pipeline totals approximately 3.4 million square feet in land-constrained markets in Canada and Europe.

Positive outlook for the future

Pauls believes real estate is a good place to invest in the current economic environment and that industrial is by far the best asset class due to its stability, the long-term nature of its contracts, the underlying health of its tenants and the strength of its demand.

Pauls expects replacement costs and barriers to entry to continue to rise due to increasing demand for industrial space along with land constraints, rising material costs and labour shortages.

“I think it’s hard to say what’s going to happen with inflation, interest rates and the geopolitical factors that influence economies, but we’re very happy with the asset class that we’re in,” said Pauls.

“We think being in real property is a bit of a hedge against inflationary pressures. We’re happy with where we’re at.”

Source Real Estate News EXchange. Click here to read a full story

Summit Industrial Buys Second Dev. Site in Kitchener Business Park

Summit Industrial Income REIT is continuing to grow its development pipeline in the area surrounding Toronto. The trust and an unnamed partner will acquire a second plot of industrial land in the Grand River West Business Park in Kitchener.

Summit (SMU-UN-T) and its partner have waived conditions on the 26.5-acre development site and will acquire a 50 per cent interest in the project in an all-cash transaction. They will pay $12.9 million for their stake in the site.

“We are pleased to be adding this site to our existing pipeline of development projects in this region, one of Canada’s strongest industrial markets,” said Summit Industrial REIT chief operating officer Dayna Gibbs in the announcement.

“Not only is this one of Canada’s tightest industrial markets, but we continue to build on our economies of scale in this area while adding to our portfolio of LEED-certified buildings upon completion.” 

Summit expects to close on the deal by the end of October.

Three Grand River West Business Park properties

In February, Summit acquired a similar 50 per cent interest in an adjacent 19.5-acre site at the Grand River West Business Park.

Summit intends to acquire the other 50 per cent interest in this property once the development is complete and stabilized. 

It also owns another property in the area, giving the trust additional economies of scale.

Grand River West is located in an established business park close to a regional airport, major highway and railway transportation links and a planned GO commuter rail service station. 

The 26.5-property is expected to accommodate two buildings totalling approximately 480,000 square feet of class-A space with street exposure, multiple access points, circulation and trailer parking. 

Current plans include a 400,000-square-foot building with 40-foot clear ceiling height. Summit intends to have both buildings designated as LEED-certified in keeping with its environmental sustainability mandate.

The 19.5-acre site is expected to accommodate one 360,000-square-foot building with a proposed 40-foot ceiling height, including three road access points and a large area for truck and trailer parking.

Summit will also seek LEED certification for this development.

“The Kitchener, Waterloo, Cambridge market, including Guelph where we own interests in other ongoing development projects, is currently Canada’s tightest industrial market with only a 0.6% availability rate,” Gibbs said in February when the first acquisition was announced.

“The strong demand for industrial space in and around the Greater Toronto Area is driving increased rental rates and strong stable occupancies in this region, making it an attractive development market for the REIT.”

About Summit Industrial REIT

Summit Industrial Income REIT is an unincorporated open-end trust focused on growing and managing a portfolio of light industrial properties across Canada.

Source Real Estate News EXchange. Click here to read a full story

Relief for Commercial Tenants in the Age of COVID-19: Courts Once Again Side With Landlords

In yet another chapter in the pandemic-fueled commercial tenancy battles, Ontario’s highest court has set out the limits on relief from forfeiture of a commercial lease.  This time, a major anchor tenant in a shopping mall asked for help after getting pummeled by COVID-19. The courts again sided with the landlord.

The case

In Hudson’s Bay Company ULC Compagnie de la Baie D’Hudson SRI v. Oxford Properties Retail Holdings II Inc., the Ontario Court of Appeal made an important ruling on the rights of a commercial tenant when a lease is terminated. Specifically, the court ruled on a tenant’s rights under section 20 of the Commercial Tenancies Act, which states that when a landlord terminates a lease and takes over the premises, the tenant can apply to the court for “relief from forfeiture” to gain re-entry.

In that case, the tenant, Hudson’s Bay Company (“HBC”) sought relief from the court following a protracted battle with its landlord during the pandemic.

HBC was the main anchor tenant at Hillcrest Mall in Richmond Hill, Ontario. Like many other shopping mall tenants, HBC’s business was greatly affected by COVID-19.

In April 2020, it stopped paying rent and tried to negotiate a deal with Oxford Properties (“Oxford”), the landlord and owner of the shopping mall. The negotiations broke down and in September 2020, HBC accused Oxford of failing to take necessary health and safety measures at the mall which were necessitated by the pandemic.

As a result, in September 2020, HBC accused Oxford of breaching its obligations under the lease by failing to operate the mall in accordance with “first-class shopping centre standards”. In response, Oxford served HBC with a notice of intention to forfeit its lease, due to the fact that HBC was in arrears of seven months’ rent, which totaled over $13 million.

HBC then commenced a court action against Oxford, seeking an order confirming that Oxford acted in breach of the lease and that it was not required to pay rent until the breach was remedied. Oxford, in turn, sought a court order for unpaid rent and a declaration that it did not breach the lease.

The Ontario Superior Court of Justice decision

The Ontario Superior Court of Justice decided the matter and held that Oxford did not breach the lease. Even if it did not comply with government-imposed standards from COVID-19, this alone did not amount to a breach of the terms of the lease. However, HBC was granted relief from forfeiture of its lease on the condition that it paid all arrears of rent. The court gave HBC several months to pay its rent arrears on a deferred payment schedule. Also, the interest rate payable on the rent arrears was reduced from the amount of prime plus 4 per cent, as specified in the lease to prime plus 2 per cent, even though HBC didn’t ask for this.

HBC and Oxford both appealed the decision. Neither side took issue with the court granting relief from forfeiture, but they both argued that the motion judge did not go far enough in making the order. HBC argued that its rent owing should have been abated indefinitely until the economic consequences of the pandemic subsided.

Oxford, on the other hand, argued that HBC was fully able to pay the arrears, and the judge should therefore have ordered it to pay within 10 days, rather than on a deferred schedule.

The Court of Appeal for Ontario decision

The Court of Appeal sided with Oxford. It was noted that relief from forfeiture under section 20 of the Commercial Tenancies Act, does not give the courts discretion to alter the terms of a lease. This holds true even in unforeseen situations like a pandemic, where circumstances are unfair to the parties. The court stated that if HBC’s position were to be accepted, it would compromise the certainty that exists in commercial leases and “would inevitably encourage litigation as a means of redefining a tenant’s obligations under a lease in response to unforeseen changed economic circumstances.”

It was therefore held that the motion judge was wrong to allow HBC to pay its rent arrears on a deferred schedule. Not only did the terms of the lease not allow this, but the remedy of relief from forfeiture provides that a tenant must rectify its lease default in a reasonable amount of time, otherwise it should not be granted.

In this case, given that HBC was fully able to pay the arrears, there was no need to allow it to pay on a deferred basis. The circumstances created by COVID-19 may have made in unfair to HBC, but the court held that a deferred payment schedule should only have been granted if HBC needed for time to pay arrears, which was not the case.

The Court of Appeal also disagreed with the motion judge reducing the interest rate payable by HBC on its outstanding arrears. It was held that there was no basis to change the terms of the lease in this regard, as reducing the interest rate was really no different from changing the amount of rent payable under the lease.

Commercial tenants the legal losers in the wake of COVID-19

The key takeaway from this decision is that commercial tenants will be granted relief from forfeiture when it is fair to do so.  However, the remedy is limited insofar as it does not give courts free reign to rewrite the terms of a commercial lease.

This case may also be the final word in the tumultuous saga of commercial tenancies in the age of COVID-19. The pandemic has wreaked havoc on commercial tenants and the courts have been merciless in refusing to grant them any recourse, even though the difficulties they faced were from circumstances outside of their control.

Please note that I have moved my practice to the litigation group at the Toronto office of Dickinson Wright LLP.

Source Real Estate News EXchange. Click here to read a full story

Slate Office Sells Two-Tower Toronto Office Building for $97M

Slate Office REIT has sold a two-tower office property at 95-105 Moatfield Dr. in Toronto for $97 million to an undisclosed purchaser.

The two towers combined have 405,407 square feet of office space with three levels of underground parking. The property is located close to the York Mills exit on the Don Valley Parkway and the busy east- west highway 401 corridor.

The building at 95 Moatfield is fully leased to Kraft Canada Inc. and 88 per cent of 105 Moatfield is leased to Thales Rail Signaling Solutions.

The sale price works out to approximately $239 per square foot, at a 6.4 per cent in-place capitalization rate according to a release on the sale.

The sale represents a five per cent increase to the REIT’s June 30, 2022 IFRS value.

Funds from the sale will go toward immediately reducing the REIT’s (SOT-UN-T) indebtedness and and will enable it to use capital for accretive opportunities.

“The strategic disposition of the property at 95-105 Moatfield Drive is a testament to our team’s ability to unlock value for the REIT’s unitholders in all market conditions,” CEO Steve Hodgson said in a statement on the sale.

“The sale price at a significant premium to purchase price further validates the REIT’s net asset value and the upside potential of the REIT’s stock and unlocks equity capital for the REIT to redeploy into more modern, high-quality assets with stable cash flow.”

The REIT originally acquired the properties as part of a portfolio of seven from Cominar REIT in March 2018 for $191.4 million.

The REIT’s 2022 transactions

In February, the REIT acquired Yew Grove REIT plc in Ireland for $254.8 million — which included its portfolio of 23 properties concentrated in technology, life sciences and other essential industries.

Yew Grove is dual-listed on Euronext Dublin and the AIM market of the London Stock Exchange.

In January, it was first announced that Yew Grove CFO Charles Peach would become the new CFO of Slate Office REIT, replacing Michael Sheehan. Peach first joined Yew Grove as a director in April 2018.

Slate Office REIT owns and operates a portfolio of workplace real estate assets in North America and Europe with offices in Toronto, Chicago and Dublin.

While it owns 54 assets globally, a majority of its portfolio is comprised of government or high-quality credit tenants.

Source Real Estate News EXchange. Click here to read a full story

Transforming Office Buildings to Livable Spaces

The pandemic has been a key driver for reimagining our relationship with the built environment and is presenting new opportunities across portfolios and sectors.

With a surplus of office space resulting from evolving workplace strategies, owners in conjunction with teams of developers, city planners, architects and engineers are actively managing a variety of complex conversions of these commercial building types into viable living spaces.

But not all office buildings are candidates for conversion. A feasibility study is required to assess the economic, aesthetic, environmental, structural, engineering and market viability for a successful conversion. Consideration must also be given to livable residential uses that range from apartment rentals and condos to attainable housing and hotels.

In this Insight Article, we provide our perspective on key drivers and considerations that are shaping the transformation of commercial office buildings into livable spaces based on our experience leading multiple projects in Canada, the US and the UK.

1. Economic viability

The staying power of hybrid and remote work is presenting a real challenge for commercial office owners and developers. While the world learns how to manage post-pandemic, the reality remains that a percentage of existing office buildings may find economic renewal in converting to livable or mixed-use spaces.

Eroding tax bases due to vacant office buildings can be a lightning rod for adaptive reuse in downtown cores. City planners and local municipalities often greenlight office conversions far faster than new builds to secure a stable tax base. Tax incentives for market-rate and attainable housing also contribute to the benefits of repurposing commercial space and offer developers more avenues to realize economic viability.

These measures help municipalities realize their ultimate goals of returning residents to the city’s most vibrant places. Activating dormant commercial neighbourhoods and reigniting downtown cores only happens with more densification. Existing office buildings are often near transit hubs and retail centres, making them an attractive option for livable use. Location is key and walkability is high on the list to command desirable units for future tenants.

While each region and municipality has planning approvals and guidelines for such conversions, Canadian cities such as Calgary launched the Downtown Calgary Development Incentive Program and recently announced the first round of funding for three adaptive reuse projects to drive economic recovery in the core.

2. Environmental and carbon considerations

Converting existing office space to residential-type units often requires adapting existing plumbing, electrical, mechanical and building systems – and in some cases, an entirely new building envelope. Not only do these enhancements improve the energy performance of the existing building, but they help to lower the operational carbon over time, therefore reducing the carbon footprint of the building.

The carbon-reduction effect on the environment by repurposing rather than demolishing or rebuilding cannot be overstated. As architects and engineers, we have a great responsibility for a sustainable future. With aligned interests, a carbon emission analysis at the start of a project informs decisions to reduce both embodied and operational carbon. As energy costs increase in response to climate change the repurposing of existing structures begins to make greater economic sense.

3. Location, characteristics and structural integrity

The location of the target building will have a dramatic effect on its suitability for conversion. The neighbouring infrastructure is critical to the initial selection of a suitable conversion.

Many office buildings are simply not suited for residential adaptation. Large commercial office floor plates (10,000 SF2 / 1000 SM2 or greater) result in lightless cores, outdated electrical, plumbing and HVAC systems – all contributing to a costly and exhaustive undertaking. These buildings may be suitable for other adaptive uses with more open floor plan characteristics. However, if development proformas pencil-out, creative solutions are available for most repositioning challenges. Often, smaller and older buildings offer more manageable space for conversions and come equipped with features like higher ceilings and larger windows that are highly desirable for residential use. Hotels are arguably even more appropriate for conversion to senior residences or attainable housing models.

Historically significant buildings may also be able to take advantage of preservation funding which will assist the economics of the conversion and add to the urban fabric of older neighbourhoods.

Preparation and pre-analysis of the existing structure are imperative. Once the basics are understood it is a matter of building flexibility into the design layout, ensuring minimal shifts to the core to avoid compromising the structural integrity. Post tension structures can be particularly challenging as are several other systems including clay tile slabs and other older structures. An integrated design approach with a deep knowledge of the systems and understanding of the market conditions of residential planning metrics is paramount to a repositioning success.

Modern technologies like laser scanning and 3D point-cloud modelling mean a faster, less intrusive way to work with existing structures. As we continue to find new ways to repurpose buildings for multiple sectors, the lessons learned are transferable from each conversion project.

4. Market trends and social impact

Residential design excellence provides personalization and pride of place, and the flexibility for different living patterns and household demographics. Premium amenity spaces must be designed to be integrated using open areas with direct connections to circulation spaces (stairs, elevators, entrance lobbies, mailrooms, etc.). Fortunately, many older office buildings have amenity spaces that can easily be converted for residential users and may be conveniently located to other neighbourhood amenities. This is very much about supporting and fortifying the idea of a 20-minute neighbourhood as urban cores continue to repopulate creating livable, walkable, sustainable neighbourhoods.

It is incumbent of any conversion project to respect the adjacent neighbours, yet firmly establish itself with the ideals of its new identity, knitting itself into the existing architectural characters of the streetscape and surrounding fabric. Fostering diversity and inclusion of tenants and space types will support thriving micro-communities and evoke an excitement that will draw people in. Developments have not been without their controversy when space standards, amenities and quality of space are not properly considered. When approached responsibly, conversations can provide an answer to what to do with unoccupied buildings, how to reduce the use of embodied carbon and help provide a solution to the shortage of quality housing within our urban centres.

The conversion of commercial buildings can be viewed as filling the gap, or could be a trend that advances livable communities, but it is a reminder that flexibility is needed to respond to our evolving world. As long as the need for housing abounds, we all have accountability to investigate existing opportunities.

Source Real Estate News EXchange. Click here to read a full story

Toronto Retail Seeing Increasingly Robust Leasing Activity as Workers Return to Offices [Report]

A retail report by commercial real estate firm JLL says retail leasing activity in Toronto should remain robust after a strong push in the second quarter of this year.

Both enclosed and open-air Toronto retail properties have attracted new concepts, with a special attention from first-to-market. Combining a dip in Q1 and the subsequent rebound in Q2, on balance the first half of the year remained on par with the first halves of 2021 and 2019, it said.

“Foot traffic is catching up, interest in in-store purchases remains high, and pent-up demand for travel and services is leading to new openings, especially restaurants. Many retailers and food-services operators have concluded that this is a window of opportunity they shouldn’t miss, and some are willing to absorb the current high construction costs ‒ even building entirely new spaces ‒ in order to capitalize,” said JLL.

“Increasing demand for retail space, fewer available spaces, and rising inflation and interest rates are among the primary contributors to the acceleration of rents in Q2. Rates went up by seven per cent year-over-year, which is in sync with the current inflation rate in Canada.

“On the supply side, overall retail inventory is expected to remain constrained as construction activity fell over the past few quarters and fewer deliveries are anticipated. Investment in retail construction has consistently contracted while investment in warehouses has accelerated. More recently, investment to build hotels and restaurants has rebounded.”

Paul Ferreira, Senior Vice President of Retail with JLL, said all signs for the most part indicate things are improving from retail sales, retail traffic, and rents stable or going up.

“I think all the metrics we would typically look at for how things are going with retail and retail real estate are improving coming out of the pandemic. The area of concern I would still have is traffic and footfall in the downtown urban core as most employers are still waiting out to see what the ultimate workplace presence ends up being in our downtowns,” he said.

The number of employees returning to the downtown core has gradually improved since February, and office occupancy should surpass 30 per cent before the fall, explained the JLL report, adding that a recent study from the University of California shows that this past spring Canadian downtowns lagged most U.S. downtowns in terms of economic and social activity (as measured by mobile phone data). Toronto and Montreal downtowns had similar rankings.

“As the number of COVID-19 infections in Ontario peaks and trends down, it’s less likely that the seventh wave will derail the momentum, prompt a stiffening of measures, or slow business activity again. Toronto’s public transit ridership continues to recover. Toronto Transit Commission (TTC) ridership reached 57 percent of pre-COVID levels in late June, from 34 percent in the beginning of February. With the resumption of in-person classes in the fall and more workers returning to the office, ridership should continue to make significant progress,” said JLL. 

“TTC forecasts that overall ridership will approach pre- pandemic levels by the end of 2023, with the complete return of students and resumption of discretionary travel, but a significant gap from office workers. The return of office workers will be continual and gradual, as major employers have announced the transition to return-to-work using a hybrid working model.”

Ferreira said the hybrid work arrangement is likely here to stay.

“What we’re seeing in downtown Toronto I’d say in the last number of weeks the presence in downtown Toronto is greater than I’ve seen it through the pandemic, since the pandemic started. The GO trains are all busier. Transit, subway, when you talk to people who are taking it seems to be full again at rush hours. But it’s not consistent on the days,” he said. “Everybody seems to be focused on the Tuesday, Wednesday, Thursday. So what does that mean for the retail and the businesses in our downtowns?”

JLL said retail sales in Toronto have been increasing since January (based on seasonally-adjusted numbers), despite Omicron. For the remainder of the year, sales should remain robust. Businesses and consumers are fairly confident about shopping due to the ongoing post-pandemic rebound, and this should last for some time.

“There have been several major retail events in downtown Toronto this year. First, IKEA opened its first urban format in Canada on Yonge Street, backfilling Bed Bath & Beyond. Second, the renovation of Union Station is near completion, and retail spaces there are in process of being occupied by several brands including Sephora and Decathlon. Third, The Well mixed-use development is set to open its retail component in early 2023,” said JLL.

“In addition, several international concepts plan to open their first location in the market. Recently, U.S. fitness Alo Yoga, Spanish fashion Mango, and Brazilian steakhouse Fogo de Chão have indicated Toronto as one of their key markets. After being largely closed during the pandemic for more than six months altogether, shopping malls are now able to breathe and operate under more normal conditions. Some days of the week are recovering faster than others. Overall, sales and foot traffic will continue to recover and approach pre-pandemic levels by the end of 2022.

“Over the long term, asset-management teams have accelerated densification plans to turn malls into mixed-use developments. Several malls have made their plans public and started to execute them. 

Toronto malls have seen vacancy rates decline as more retailers feel compelled to expand in enclosed spaces. Shopper hesitancy has decreased, and masking is no longer mandatory. EV, athletic, and luxury have notably expanded across the major malls.”

Source Retail Insider. Click here to read a full story

Canada’s National Office Vacancy Rate Dips in Q3: CBRE

The office markets in Canada’s major cities aren’t as buoyant as during pre-pandemic days, but are still doing relatively well in comparison to those in other countries.

CBRE just released a report that examines the Canadian office market during Q3 2022, and national managing director Jon Ramscar shared his views on the current climate, and what to expect in the coming quarters, with RENX.

Though office vacancy remains elevated compared to before the COVID-19 pandemic, Canada still boasts three of the five lowest downtown vacancy rates in North America.

Vancouver was at 7.1 per cent, Ottawa at 11.5 per cent and Toronto at 11.8 per cent. That compares to Manhattan at 15.2 per cent, San Francisco at 24.2 per cent and Dallas at 32.2 per cent.

Ramscar attributes those differences to Canadian cities having lower vacancy rates before the pandemic, and to the stability of the country’s relatively small number of major building owners.

Downtown and suburban vacancy rates

The national vacancy rate decreased by 10 basis points to 16.4 per cent in the third quarter, which was a first since the onset of the pandemic. This was led by further improvement in the suburbs, as downtown markets remained stable with 16.9 per cent vacancy. 

Ramscar said an exodus from downtown to suburban offices which had been predicted by some observers early in the pandemic hasn’t materialized. He did note, however, that physical occupancy as opposed to contractual occupancy is higher in the suburbs, even though it is now also starting to rise in downtown buildings.

While Toronto remains behind global competitors London and New York City for physical office occupancy, largely because it had longer and more severe lockdowns due to COVID-19, Ramscar said it’s gradually making up ground. 

The Toronto office market is also heavily influenced by major banks and insurance companies and, once they start to enact wide-scale back-to-the-office mandates, Ramscar expects occupancy numbers to increase even more as they have in London and New York.

Calgary, Waterloo Region and Toronto were the only markets to report decreases across both their respective downtown and suburban regions.

Some companies that have been expanding have moved from suburban to downtown offices as part of a flight to quality to attract and retain talent and enhance branding, according to Ramscar.

Class-A vs. class-B office performance

As downtown tenants prioritize quality over cost, the national vacancy rate of downtown class-B office towers (21.4 per cent) was nearly 50 per cent higher than for downtown class-A product . Downtown class-B vacancies are at a national all-time high.

That trend began early during the pandemic and the gap has continued to widen.

“What companies, investors and occupiers are betting on is high-quality, well-located buildings or built-out space where they’ve got an option to get a deal and upgrade as part of the war for talent,” said Ramscar. 

Demand for quality space has kept downtown class-A vacancy under or around 10 per cent in Vancouver (6.7 per cent), Ottawa (eight per cent) and Toronto (10.2 per cent).

Toronto and Vancouver have become cities where global companies want to locate and expand, with technology-based firms leading the way.

“We’ve got great talent and are reasonably cost-effective,” said Ramscar. “We’re very liberal, open and welcoming and offer a great quality of life.”

While more occupiers are solidifying their remote and hybrid work models, new supply is expected to have the largest impact on vacancy rates moving forward. Backfill spaces due to tenant relocations into new builds are expected to come to market over the coming quarters in Vancouver, Toronto and Montreal.

Positive office absorption and declining sublets

There was 2.1 million square feet of positive net absorption recorded in the third quarter, with much of it attributed to the delivery of pre-leased new supply. Excluding the new deliveries, absorption was 207,000 square feet. 

Calgary and Waterloo Region experienced a pick-up in absorption activity, primarily from engineering, financial services and creative industry firms.

Vancouver and Ottawa saw some softening as some tenants decided they no longer required as much space, which resulted in an uptick in sublease offerings. Halifax had the largest increase in sublet space at 43 per cent, while Montreal, Toronto and Winnipeg had much smaller increases.

Sublet activity has declined significantly since early in the pandemic, however.

Calgary, which is typically known for having a higher share of sublet space, has seen these offerings decline for five consecutive quarters to 16.9 per cent of vacant space — a seven-year low in absolute terms. Sublease decreases were also noted in Edmonton and London.

Subleases accounted for 18.2 per cent of total vacancy nationally in Q3 and maintained the Q2 total of three per cent of existing inventory.

With occupiers remaining focused on quality, amenity-rich spaces to draw employees back to the office, built-out sublet offerings are presenting enticing ready-to-occupy options.

Office development activity and pre-leasing

Office construction levels declined to 12.7 million square feet, with major project deliveries coming to market in downtown Toronto as well as suburban Montreal and Halifax during the third quarter.

Suburban office development activity is led by Vancouver, where the suburban vacancy rate has remained under seven per cent during the past four quarters and is the lowest of the major markets.

The active development pipeline is equal to just 2.6 per cent of inventory. It is 54 per cent pre-leased.

Pre-leasing rates have remained stable because a lot of this activity took place pre-pandemic and was already committed.

There were some large office lease deals signed in the third quarter, including:

• Microsoft completing a deal for approximately 400,000 square feet at the under-construction B6 at 1090 W. Pender St. in Vancouver;
• medical technology provider PointClickCare expanding its presence by taking 90,000 square feet over three floors at The Well in Toronto;
• and India-based information technology provider Mphasis signing up for 26,160 square feet for its new Canadian headquarters at First Tower in Calgary.

Optimism still remains

Despite uncertainty about future office demand — combined with a near-term economic slowdown, rising financing and construction costs, and labour shortages — Ramscar said no developments have paused construction and landlords remain committed and optimistic.

“I think, with interest rates rising, we have choppy, choppy seas ahead,” said Ramscar. 

“But I think we’re well-placed with the fundamentals we have. We don’t have a lot of stock to play with, and it’s so controlled, and we’ve got huge demand fundamentals.”

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Offices, Condos, Towns: Checking In On Recently Completed Projects in the GTA

Since the end of the summer, a new class of developments have graduated from the construction phase into completion. We track all of this information on a daily basis with UrbanToronto Pro, and with this article we’re summarizing the projects which we have switched to completed in our database files. We should note that by completed, we mean substantially completed, to the point that the buildings have generally allowed occupation to begin, even if there are some loose ends to still take care of! Scotiabank North Tower at Bay Adelaide Centre Lights are turning on in the Scotiabank North Tower, the final piece of the Bay Adelaide Centre complex developed by Brookfield Property Partners located in the heart of Toronto’s Downtown Core. The 32-storey tower brings more than 800,000ft² of commercial office space to the sprawling complex, and achieves AAA class through a high standard of technological design in construction and operation.

This residential condominium from iKore Developments began welcoming occupancy in late August after two and a half years of construction that began in the early half of 2020. The 21-storey tower, designed by Richmond Architects, will deliver 216 units to the southwest corner of Lawrence Avenue West and Keele Street in Toronto’s Amesbury neighbourhood.

Avenue & Park

Up in the Ledbury Park neighbourhood, between Lawrence Avenue West and the 401, Avenue & Park, a luxury 7-Storey mid-rise from Stafford Developments and Greybrook Realty Partners, has marked the end of major construction. The exclusive 35 units were nearly sold out before demolition of the existing building began in 2017, and with doors open officially, the wait for occupancy is ending. 

BT Modern Towns

In mid-September, a block of 3-storey stacked townhouses was completed and has now opened doors to 24 units in the on Dervock Crescent, located just south of Sheppard Avenue East, between Bayview Avenue and Leslie Street. From developers Buildcrest and Algar Developments Inc, the modern build features a mix of brick, wood, and metal finishes, while rooftop terraces offer private outdoor space. 

2Fifteen

The southwest corner of Avenue Road and Lonsdale Road is now the home of a luxury residential building from Preston Group and DBS Developments. Reaching 20-storeys, the building accounts for 177 units in the Forest Hill neighbourhood, and includes 44 rental replacement units along with 133 new ones. 

Effort Trust Building (Hamilton)

On the Hamilton counterpart of King Street East, a 5-storey office building with an angular design from Eposto Architects is being opened by developers Effort Group. Clad in dark tinted window-wall, the sleek building is a new asset in a rapidly redeveloping city centre.

Bianca Condos

This 9-storey mid-rise development from Tridel is part of a string of similarly scaled projects spanning from Ossington Avenue to Spadina Road that are bringing a spike in density to Dupont Street. Located just west of Spadina Road, Bianca benefits from the neighbourhood quality of The Annex while delivering a dynamic design that enables 216 units to enjoy a wealth of outdoor terrace space.

Erin Square Condos (Mississauga)

The end of the summer marked the completion of a 2-tower residential development on Metcalfe Avenue in the Erin Mills area of Mississauga that has now started occupancy for 408 units. The two towers from Pemberton Group are 21 storeys each, and are built above a shared podium where residents will find a mix of indoor and outdoor amenity space. 

UrbanToronto will continue to follow progress on construction and development in the GTA, you can learn more about other projects from our Database. If you’d like, you can join in on the conversation on any project in the associated Project Forum thread.

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22 Storeys Proposed on Yonge Opposite Summerhill Subway Station

Zoning By-law Amendment and Site Plan Approval applications submitted to the City of Toronto on behalf of Trinity Point Development by the Goldberg Group showcase prospective renderings of Brisbin Brook Beynon Architects’ design for a 22-storey residential mixed-use building.

Located at 1212 through 1220 Yonge Street, at the southwest corner of Alcorn Avenue and across from Shaftesbury Avenue and its entrance to Summerhill subway station, the application seeks to demolish a series of existing low-rise commercial buildings on a 1,365m² assembled plot in favour of an organic tower inspired by the developments that line Yonge Street’s Summerhill neighbourhood. These existing three to four storeys buildings currently provide retail uses at grade and commercial offices above, typical of this stretch of Yonge Street.

Designated as a Mixed Use Area ‘C’ in the Yonge-St Clair Secondary Plan and defined within a Strategic Growth Area according to the City of Toronto’s Growth Plan, the subject site’s centrality and immediate proximity to higher order transit and surface transit outline its potential for growth and intensification. A ‘Major Transit Station Area’ can be defined as an “area within an approximate 500 to 800 metre radius of a transit station, representing about a 10-minute walk.” 1212-1220 Yonge Street is approximately 90 m from Summerhill subway station, 625 m from St Clair subway station, and 600 m from Rosedale subway station, further emphasizing its appeal.

The 22-storey mixed-use proposal has a four-storey podium fronting Yonge Street and Alcorn Avenue. Rising to a total of 80.3m, the development has a Gross Floor Area of 13,862m², which includes 13,360m² of residential and 502m² of non-residential, which will give the site a density of 9.9 FSI.

The curved, more organic tower form that Brisbin Brook Benyon Architects have elected for is meant to appear less intrusive within the Yonge-St Clair neighbourhood. The softer edges provide fluidity to the slender tower helping to define the Yonge Street and Alcorn Avenue intersection.

The staggered filleted edges fronting Yonge Street — clad in limestone panelling and clear glass — define the grade-level retail units whilst improving the public realm through carefully curated hard and soft landscaping proposals. Set back 5.4m from the northeast property line at its greatest, this outdoor space is protected by an overhanging upper floor that shelters pedestrians accessing the double height, 7.1m tall residential lobby and retail units below. At ground level, 3.5 levels of underground parking are accessed via a laneway leading off Alcorn Avenue to the site’s western perimeter providing 66 vehicle parking spaces and a portion of the scheme’s 193 bicycle parking spaces

Horizontal bronze colour metal channels pragmatically define each level and expertly wrap around the protruding balconies to give the scheme a sense of harmony. The expansive clear glazing abundant in 21st-century condominiums offers up views of the neighbourhood for residents and seemingly reduces the overall mass of the proposal.

In total, the development consists of 185 residential units comprising 65 one-bedroom units (35%), 99 two-bedroom units (54%), and 21 three-bedroom units (11%), which exceeds the City of Toronto’s requirements for percentages of unit types. A total of 302m² of indoor amenity space and 351m² of outdoor amenity space are also provided for residents.

UrbanToronto will continue to follow progress on this development, but in the meantime, you can learn more about it from our Database file, linked below. If you’d like, you can join in on the conversation in the associated Project Forum thread or leave a comment in the space provided on this page.

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Menkes Propose Three Towers on Brownlow Avenue near Eglinton and Mount Pleasant

Planners Goldberg Group have recently resubmitted Zoning By-law Amendment (ZBA) and Site Plan Approval (SPA) applications on behalf of Developers Menkes Brownlow Inc. for three residential towers rising to 35, 40 and 45 storeys in height atop two 6-storey podiums designed by Turner Fleischer Architects at a site municipally known as 55 through 75 Brownlow Avenue in Toronto’s Midtown.

An original submission from August, 2021 occupied 61 through 75 Brownlow Avenue and facilitated the site’s redevelopment with a single 35-storey residential tower containing 384 residential units. Since then, the application lands have expanded to include 55 Brownlow Avenue, a plot to the immediate south currently occupied by a 15-storey building containing 121 rental units. Menkes Brownlow Inc. seeks to provide full rental replacement while delivering an additional 1,041 residential units, an increase of 778 units from the previous application.

Located on the east side of Brownlow Avenue, 70m south of Eglinton Avenue East and 50m West of Mount Pleasant Road, the now 5,752m² rectangular plot is part of the Mount Pleasant West neighbourhood, sited within the Yonge-Eglinton Centre of the Yonge-Eglinton Secondary Plan. As such, it is considered an Urban Growth Centre within the Growth Plan, an area designated for significant development and population growth over the coming years.

Brownlow Avenue’s adjacency to two major arterial roads, Eglinton Avenue East and Mount Pleasant Road, running east-west and north-south, respectively, means the site is well served by existing TTC bus routes with stops no greater than 800m away. Yonge Line 1  is also accessible via Eglinton station 750m to the west and served by the aforementioned bus routes. The site is also strategically positioned 100m from the soon-to-open Mount Pleasant station on Eglinton Line 5, further increasing accessibility to the site.

By detaching the two podiums on the expanded site and offsetting them 20m from one another, Turner Fleischer Architects are proposing a new public park measuring 426m² in size fronting Brownlow Avenue. The 6-storey podium of Tower A is also setback 9m from the northern property line allowing for a midblock connection and access to three levels of underground parking with 217 vehicle parking spaces and 1,285 bicycle parking spaces. This setback increases to 10m along the eastern perimeter for both podiums to introduce a 22.5m separation distance from an approved 35-storey mixed-use building at 744-758 Mount Pleasant Road that, according to the proponents, meets the intent of the City’s Tall Building Guidelines.

A striking utilitarian red brickwork façade delineates the first three storeys of the two 6-storey detached podiums abutting the western property line fronting Brownlow Avenue. This abruptly transitions into white brickwork for the remaining three podium levels and subsequent three towers above. Bronze-finished architectural fenestrations harmoniously tie all levels together and are defined by chamfered brickwork columns.

The three distinctive towers gradually cascade in height from 151m at the northern perimeter to 121m at the southern perimeter and collectively provide 88,538m² of Residential Gross Floor Area, representing a Floor Space Index of 15.02. These will provide 1,162 residential units, inclusive of the 121 rental replacement units, comprising 870 one-bedrooms (75%), 175 two-bedrooms, (15%) and 117 three-bedrooms (10%), along with total combined indoor and outdoor amenity spaces of 3,272m² located on the ground and 7th floors.

UrbanToronto will continue to follow progress on this development, but in the meantime, you can learn more about it from our Database file, linked below. If you’d like, you can join in on the conversation in the associated Project Forum thread or leave a comment in the space provided on this page.

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