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Bank of Nova Scotia will vacate the top floors in the central skyscraper in Scotia Plaza in Toronto’s financial district, putting more prime office real estate on the market at a time when the COVID-19 pandemic is pushing up vacancies.

Scotia Plaza’s owners announced Scotiabank renewed part of its lease in the four-building complex, but would give up the top of the 68-storey office tower.

The landlords, KingSett Capital and Alberta Investment Management Corp. (AIMCo), made the announcement in a news release as numerous Bay Street firms and other businesses have been putting some of their space on the sublet market.

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The increase in sublets raised downtown Toronto’s office vacancy rate to 7.2 per cent in the fourth quarter of 2020 from 2 per cent prepandemic, according to data from the commercial real estate firm CBRE.

Although Scotiabank is vacating prime real estate at Scotia Plaza, the bank will take space in a new building in the financial core. Brokers had expected Scotiabank to shed some real estate as it prepares for the move.

“This was calculated and planned. I don’t think the pandemic was the final decision,” said Bill Argeropoulos, head of research with commercial real estate company Avison Young. “All of the banks have been looking at their footprints over the last several years.”

Scotiabank’s senior executives occupy lower floors of the tower, while Scotia’s investment bankers occupy part of the upper levels the bank is giving up. The bank’s lease with Scotia Plaza was due to expire at the end of 2024. The top floors will be available starting in 2023.

Scotiabank did not respond to questions about the future of its office space, whether cost savings were a consideration or whether its office footprint would remain similar to prepandemic days. In the news release, Stephen Morson, Scotiabank’s senior vice-president of real estate, said the bank believes “in the importance of having a prominent, physical location in Toronto’s downtown core.”

It is unclear whether Scotia Plaza’s penthouse will still command the same prestige it once did. Bay Street tenants are reconsidering their offices and how staff will occupy the space when the health crisis ends. Since the pandemic started, elevator use in the financial district has been restricted to adhere to physical-distance requirements. Elevator rides to the top of Toronto’s skyscrapers were already time-consuming.

The red granite Scotia Plaza tower, the second tallest skyscraper in the financial district, will be competing with several newer office towers. As well, this is happening as other prominent downtown office tenants try to shed space, conserve cash and plan for the future of their offices.

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They include TMX Group, which operates the Toronto Stock Exchange; consultancy Mercer Canada; global financial-services giant Citco; and British-based Finastra, which owns a widely used mortgage-processing platform called Filogix.

Finastra has consolidated multiple Toronto locations into one suburban office and is moving to a model that will allow employees to work remotely for part of the week. TMX Group has said it is building a flexible back-to-work plan for its office staff.

The rent per square foot in Scotia Plaza is expected to be lower than in the bank’s new building, which is the third and shortest tower of Brookfield Properties’ Bay Adelaide Centre.

The news release said Scotiabank renewed 560,000 square feet at two of the four buildings in Scotia Plaza. Overall, the bank will still have 1.1 million square feet at the complex.

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