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John Arnoldi, executive managing director at Colliers International, Toronto region, at site of a new tower on Bremner Blvd. (JENNIFER ROBERTS FOR THE GLOBE AND MAIL)
John Arnoldi, executive managing director at Colliers International, Toronto region, at site of a new tower on Bremner Blvd. (JENNIFER ROBERTS FOR THE GLOBE AND MAIL)

Office space

Toronto’s south core – wrong side of the tracks no longer Add to ...

There was a time when no one wanted to set up their offices “south of the tracks” in Toronto.

The Gardiner Expressway and the railway lines essentially cut off the land below Front Street, making it undesirable for major corporations looking for a home base. But with downtown office vacancy tight, more tenants are looking to plant their flag in the “south core.”

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As the condo boom amps up infrastructure in the area and tenants seek spaces with lower taxes and leading-edge amenities, the south core has turned into a hotbed of office development all the way to the Lake Ontario waterfront.

“That traditional stigma is gone,” said John Arnoldi, executive managing director at Colliers International, Toronto region. “Not a lot of people would have predicted you’d get major accounting firms [like PricewaterhouseCoopers] south of the financial core, and people like Telus that have brought a significant number of employees from the suburbs to be in that area.

“Look at [Royal Bank of Canada] kicking off the new RBC WaterPark tower. That’s another example of a major financial institution that’s gone south of the tracks. So I think it’s wide open.”

Since 2006, Toronto has been in the midst of an office building boom and much of it is happening in the south core, said Julian Brandon, a commercial real estate consultant with DTZ Barnicke Ltd.

The current development cycle is also dominated by south core towers, including RBC WaterPark Place, at 88 Queens Quay, the new site of its personal and commercial banking group, and 120 Bremner Blvd. (with tenants Marsh Canada Ltd. and SNC Lavalin), as well as proposed/pre-leasing sites such as 1 York St., 265 Queens Quay and 16 York St. (with rumours that companies such as Apple Canada and Cisco are looking for south-core space).

“Out of the last 10 developments, seven have been south core, south of Union Station,” Mr. Brandon said. “And half of the next phase of planned ones are also in that area. So that’s basically the story in the new development era.”

Stuart Barron, national director of research for Cushman & Wakefield, adds, “There’s about four million square feet on the rise. The only new building rising in the [traditional] core is the Bay-Adelaide east tower … close to 65 per cent [of total downtown office developments] are rising south of Front Street.”

Part of the reason there’s been such interest in the south core is that downtown vacancy rates are a low 5 per cent, and it’s where major landowners have space available, Mr. Arnoldi said. “It’s the ‘if you build it, they will come’ mentality.”

The condo boom has also brought benefits to area, Mr. Arnoldi said, resulting in the creation of a great deal of commercial development such as retail, hotels and restaurants. “It has made [the south core] a node that office development can nicely blend into.”

As well, south-core projects are attractive to those who want to be a lead tenant in a brand-new building and thereby upgrade their image, Mr. Brandon said. “Along with the signage and the stakeholder interest in the new building, you can drive things like green LEED incentives, roof-top decks, bike storage.”

Many of the new buildings perform better when it comes to technology, featuring “any place data,” faster Internet performance and high-speed elevator systems. In addition to better livability, improved environmental systems also create cost savings, Mr. Brandon said.

“The operating charges are generally lower than older-stock buildings,” he says. “There’s no conclusion yet on by how much, but people are estimating by between 6 and 10 per cent, and when you’re operating in the millions and millions of dollars on a building, that’s substantial.”

In addition, Mr. Arnoli adds that the tax base is lower in the south core than the traditional financial core. “So that’s attractive to people as well, a new building at a lower price than the traditional bank towers.”

Greg Grice, senior vice-president of enterprise services and chief procurement officer for RBC, said the expansion to the new WaterPark building reflects the company’s growth as well as the City of Toronto’s development in that area.

“It is also important to us that we reduce both our real estate and environmental footprints, as well as operating costs, while equipping our employees with innovative new tools and technologies that help them provide the best service to our clients. RBC WaterPark Place fits all these criteria,” he said.

Another south core benefit is the proximity to Union Station. “With the revitalization of Union Station that’s going on, it’s absolutely the biggest transit hub in the GTA and people flock to that,” Mr. Arnoldi said.

Gregg Lintern, director of community planning for Toronto and East York District, says the city’s official plan clearly envisions the extension of the financial district south of the rail corridor, “with the key factor being walking distance to Union Station.”

“This is the most significant regional transportation hub and should be used to draw labour from long distances for businesses that want to locate in downtown Toronto,” Mr. Lintern said.

The RBC WaterPark tower, the third phase in the Oxford Properties development, will have an added transportation bonus for employees – an elevated, enclosed pedestrian bridge that will link the building directly to the Air Canada Centre and Union Station, a feature that RBC says will be the first of its kind in Toronto.

“It’s that type of stuff that is really going to pull the south core into more proximity,” Mr. Arnoldi said.

When it comes to development along the waterfront, Mr. Brandon said landowners are “champing at the bit” to develop several sites that are in the pre-leasing stage and will do so once they secure lead tenants. But Mr. Arnoldi said he thinks the lack of convenient transit for employees may impact development that is too far east and west from Union Station.

“There is a transit line they’re talking about, the LRT, that will help, and in the interim there’s talk if some new buildings get built, of having shuttles that will shuttle people back and forth from Union Station, that kind of thing,” he said. “But those sites are not as convenient and I think there are some other sites on York Street and the foot of Bay that will be built sooner than things that are on the periphery.

“It’s mostly eastward where the development is going to happen – that’s where the lands are available and the question is, how far are people willing to go east of Yonge Street and still find it convenient?” Mr. Arnoldi said. “Or do they say, ‘You know what, if we’re going to be this far away from Union Station and the traditional core, why don’t we go to the suburbs and save ourselves even more money on the taxes?'”

With this south core development boom in full swing, the question becomes, how long can it continue, particularly in uncertain economic times? Mr. Barron says he’s “shocked” that the new development cycle is as robust as it is, given the current uncertainty in the global economy.

“The risk is that, is the economy of tomorrow going to be quite as supercharged as the economy of yesterday from an office demand perspective?” Mr. Barron asked. “And there are some factors which are still in place which would support that and some which would argue against it.”

One argument for a continued office space boom? “We are still in a low-interest environment and that helps to fuel demand and reduce costs on companies’ income statements,” Mr. Barron said. And part of our hot downtown office market is foreign companies recognizing that Toronto is a good place to do business, he says.

“Companies are saying, ‘Canada is a safe environment, a good bet, their companies remain profitable, Toronto is a vibrant market. All this condominium development, we can tap into that educated work force,’” Mr. Barron said. “Also, [there’s an] energy level and vibrancy related to productivity that you can’t parallel in the suburban market.”

 

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