Canada Pension Plan Signs One of Largest Office Leases Since Pandemic Hit
Canada Pension Plan Signs One of Largest Office Leases Since Pandemic Hit
Country’s Biggest Pension Fund Heads to New Toronto Building
The country’s largest pension fund has agreed to one of the biggest office leases since the pandemic hit, a deal that calls for the Canada Pension Plan Investment Board to relocate to a new Toronto tower.
People close to the deal confirmed to CoStar News an Avison Young report that CPPIB is leasing 330,000 square feet in the second tower in CIBC Square at 141 Bay Street. The 50-storey tower is a development project by Montreal-based Ivanhoé Cambridge and Houston-based Hines that broke ground in 2021 and is set to open in 2025.
Carl Gomez, chief economist and head of market analytics for Canada for CoStar, said in the current office market, more tenants appear to be more likely to consider newer, high-quality space.
“There is more nuance to” the so-called flight-to-quality trend often cited in real estate circles since the pandemic hit, he said. “While availability rates in top-rated towers have held up better than in lower-class buildings, a bigger shift has been from old to new,” he added. “This mammoth lease is a classic reflection of that.”
Officials with CPPIB, overseeing $590.8 billion in assets under management at year-end, wouldn’t comment on the deal. The pension fund has about 1,600 employees in Toronto, where its current head office is in a building it owns at 1 Queen Street East.
A boost for the office market could be coming at the right time for Toronto. Avison Young said the availability rate reached 19.5% in the first quarter, up from 19.3% in the fourth quarter.
“The lack of new project announcements in recent years has resulted in the supply pipeline tapering off as projects are completed,” the Avison Young report stated.
Location Shift
Of the 13 office buildings under construction across the Greater Toronto Area at the end of the first quarter, five were located in the suburbs, Avison Young said, two were in Toronto East, two in Toronto North and one in Toronto West, with these projects combined accounting for 20% of the total square footage under construction in the Greater Toronto Area.
That compares with just 6% in the first quarter of 2020, when the downtown market’s construction pipeline represented a much larger share, Avison Young’s report said.
The CPPIB deal was easily the largest office lease of the quarter in Canada’s largest city, with Invesco’s 66,800 lease renewal at 120 Bloor Street Street East second, according to Avison Young.
Canadian Natural Resources signed the biggest lease since the pandemic hit when it agreed to take 702,000 square feet at 400 4th Ave SW in Calgary in December 2023, according to CoStar data.
Ivanhoé Cambridge officials could not be reached for comment, but a previous release noted CIBC as the lead tenant for the 3 million-square-foot CIBC Square. The second tower is 1.5 million square feet.
JLL also noted the CPPIB transaction in its first-quarter report on the Toronto market. The real estate company termed the deal a relocation.
“As the office construction pipeline dwindles to near-zero by 2027, relief for landlords could be on the horizon. Meanwhile, the divergent fortunes of higher-quality buildings and commodity buildings will widen as declining occupancy and mounting financing costs weigh on the latter. As the city focuses on generating more housing, there may be a shift in zoning policy away from office and toward residential redevelopment to facilitate this transition,” JLL noted in its report.
Source CoStar. Click here to read a full story.
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