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Office properties will be a bigger part of RioCan’s business, as the Canadian mall owner overhauls operations and reduces its exposure to underperforming shopping centres in small cities.

The real estate investment trust expects office properties to eventually account for about 10 per cent of its overall revenue, nearly double the current level.

As shares of mall owners slump amid the growth of online shopping, RioCan has been developing apartments and retooling its suite of retail centres. Now, office buildings will become a more significant revenue stream for the trust.

“Our office portfolio gets lost in the shuffle,” said Ed Sonshine, chief executive of RioCan Real Estate Investment Trust, on a conference call to discuss last year’s performance.

Mr. Sonshine said the strong demand for office space has taken him by surprise. He noticed that the rent at RioCan’s office buildings in midtown Toronto, where the trust’s headquarters are located, has surged over the past few years. “It is a huge growth driver. One I didn’t expect,” he said.

In another one of RioCan’s Toronto properties, the office space is fetching more rent per square foot than its retail space, a reversal of the norm. The rent is “higher than what the supermarket is paying us,” Mr. Sonshine said in an interview. “That really caught my attention,” he said.

Demand for office space has been insatiable in the city, with financial services firms and tech companies expanding their footprint and other businesses moving downtown. The office vacancy rate sank to a new low of 2.7 per cent in the fourth quarter; Toronto has had the lowest vacancy level in North America for at least two years, according to commercial realtor CBRE.

For most of RioCan‘s 26 years in business, the trust has owned and operated Canadian shopping centres. It recently started turning some of its existing retail properties into apartments and condos, which it expects will generate about 6 per cent of its revenue.

In total, RioCan currently has about 2,000 multiresidential units under construction. It is also co-developing a large retail and office complex just west of Toronto’s financial district.

However, Mr. Sonshine does not think the addition of office buildings and apartments means that RioCan is a diversified trust. “Might we, five or seven years from now, be more edging toward what I will call diversified? Maybe. Right now we are still predominantly retail, as opposed to exclusively.”

Late in 2017, the trust changed course and decided to focus on the six largest Canadian markets of Vancouver, Calgary, Edmonton, Montreal, Ottawa and the Toronto region. Its goal is to generate 90 per cent of its rental revenue from those markets, with about 50 per cent from the Toronto area.

Since that time, the trust has sold or has deals to sell 72 of its shopping centres in smaller Canadian cities. That represents nearly three-quarters of the suite of malls it wants to sell. RioCan said the capital raised amounts to $1.5-billion. In conjunction with the divestments, 69 employees have lost their jobs.

For the year ended Dec. 31, RioCan funds from operations rose 3 per cent to $1.85 for each unit, despite the mall divestments and severance costs associated with laying off staff.

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