Shopify Inc. SHOP-T has scuttled plans to move into a splashy new office tower in downtown Toronto, adding to the growing inventory of unused office space in the country’s largest business hub.
The Ottawa-based e-commerce company was supposed to be the major tenant in the Well Tower, a massive, newly built office, residential and retail skyscraper owned by real estate investment trusts Allied Properties and RioCan. But Shopify has abandoned plans for the move even though it has a 15-year lease that legally requires it to continue paying rent on the space.
Shopify spokesperson Alex Lyons confirmed the decision in an e-mailed statement to The Globe and Mail. The news was first reported by the Toronto Star, which recently moved into the Well Tower.
If Shopify stopped paying rent, Allied and RioCan could sue the company for breaking its lease.
But Allied chief executive Michael Emory said Shopify has not defaulted on its lease obligations. “Shopify is paying the rent and it will not be allowed to break its lease, nor is it trying to break its lease,” he told The Globe. “Shopify is a reputable and honourable organization, as are Allied and RioCan.”
Shopify’s 15-year term at The Well started last year, according to an Allied press release from 2018. Initially, Shopify agreed to take 250,000 square feet. Then, in the first year of the COVID-19 pandemic, when its stock price was soaring, it exercised its option for an additional 90,000 square feet.
Shopify has several potential courses of action. It can leave the space empty while it continues to pay rent, or it can try to sublet the massive space. Mr. Lyons declined to say what options the company was exploring.
“We have a bold vision for the future of work at Shopify, and are no longer a work force that centres around a physical workplace for day-to-day work,” Mr. Lyons said, adding that for any “highly intentional, in-person gatherings,” Shopify would use its sole Toronto space, located at the King Portland Centre.
As of Thursday afternoon, the Shopify space at The Well had not hit the sublet market. The company’s logo was still visible on a sign outside the building, but Shopify was not listed in a touch-screen directory.
If Shopify does choose to sublet, it will be doing so at a time when Toronto’s market for office space already has a surfeit of underused space.
Over the past two years, 11 office towers – the equivalent of 6.7 million square feet of space – have opened, according to data from commercial real estate firm Altus Group. On top of that, traditional Bay Street institutions, such as Canadian Imperial Bank of Commerce, have already put large amounts of office space up for sublet.
As of the end of September, Toronto’s office vacancy rate was about 15 per cent, according to Altus data. That was up from 4.2 per cent in 2019. The city’s office vacancy rate was lower even in the depths of the 2008 Great Recession.
Still more office space is set to hit the downtown Toronto market over the next few years. Fourteen office buildings are under construction, which will add 4.86 million square feet, according to Altus data.
Tech companies across the world have been in a bind for the better part of this year. Rising inflation and interest rates have created macroeconomic challenges for them, leading to layoffs and slowed hiring.
The price of Shopify’s stock has collapsed by nearly three-quarters since its late-2021 peak. The company recently laid off more than 10 per cent of its global work force, and 2023 will be the first time since the onset of the pandemic that Shopify has started a new year with fewer employees than it had in the previous year.