The St. Clair Centre in Toronto’s midtown was an elegant design when it was built 50 years ago, but it had become cluttered and drafty as scores of different tenants made alterations to the building over the years.
“Inside, only 50 per cent of the building could be leased to tenants. The rest of it had become corridors, storage and unusable space,” says Steven Paynter, principal at Gensler, a global architecture and design firm, which did a total rethink of the building at Yonge and St. Clair inside and reclad the exterior to eliminate air leakage.
Multiple corridors were replaced with one large central corridor that goes east to west, with stores arranged around a central glass-roofed atrium. “It makes it more navigable and user-friendly because it’s a lot easier to understand why you’re in there,” he says.
The renovation managed to raise the leasable space in the Slate Asset Management-owned building to 85 per cent, he adds. “That’s a huge win for the landlord because even if the rent remains the same, it resulted in 35 per cent more leasable area.”
It’s the kind of re-evaluation that will be important for older buildings in the post-lockdown economy, says Roelof van Dijk, senior director of national research and analytics for commercial real estate company Colliers International. “For landlords of older buildings who have found themselves with some vacancies due to the pandemic, now might be a good time to think about repositioning.”
Toronto in particular went through a huge economic boom in the late sixties and early seventies, and many of the retail buildings that were built around that time are reaching the end of their lives in terms of their sustainability, he notes.
“Some of these buildings are facing high vacancies in the aftermath of the COVID-19 lockdowns that have seen office tenants rethink space needs and retailers shrink their locations,” Mr. van Dijk says. “Doing upgrading will allow the owners to attract tenants who will ultimately pay higher rents for better space.”
He’s also seeing this renovation trend in older properties happen in Montreal and Vancouver, as well as near the ByWard Market area of Ottawa.
Tenants who just think of interior redesign can be missing a key element that can quickly repay the investment, Mr. Paynter says.
A renovation of luxury retailer Holt Renfrew’s flagship store on Bloor Street not only created more usable space in the interior of the store, it also gave the store a stylish, modern façade that greatly increased its energy sustainability.
Insulation and airtightness have become critical factors in updating buildings, Mr. Paynter says. “Both St. Clair Centre and Holt Renfrew were designed at a time when energy was super cheap,” Mr. Paynter notes. “Even the best buildings in the sixties and seventies had only a few inches of insulation and there was little attention to air leakage.”
“I use the analogy of a boat,” he continues. “It doesn’t really matter how good the hull of your boat is, if you’ve got a hole in it, it’s going to leak. The same is true of a building: You can have a perfectly insulated building, but if you have holes in it around beams or gaps in the structure, everything else you’ve done has been a waste of time.”
The new Bloor Street façade updated Holt Renfrew’s image while rebuilding in an extremely airtight way to ensure there are no energy losses, Mr. Paynter notes. “We used a Jurassic limestone, called Dura, [that has] an interesting texture that’s full of fossils. Behind the façade is an air gap to let the building breathe, then six inches of insulation, which is more than the code requires right now, as well as vapour barriers. This acts like a high-quality winter jacket; it keeps you warm but also allows moisture to evaporate.”
Most of the Holt Renfrew renovation was done pre-COVID, while the store remained open. “We created a kind of tunnel around the construction site and once you were in the store, you’d never know the construction was going, even at times when the building had no façade, and the temperature was minus 20 outside.”
The project began three years ago with computer renderings and mock-ups to plan the work in stages. “There’s archeology to see what is behind ceilings and walls and you have to go to the archives to get to the skeleton of the building before you start designing and demolishing,” Mr. Paynter says.
“Especially when the buildings are occupied, you need to understand what’s behind a wall before you take it out and plan the work in stages because you don’t want to kick everybody out for three years while you do the work.”
Since the new façade was completed, Holt Renfrew is already seeing energy savings of 10 to 15 per cent, which means the payback in energy savings from the renovation could be as short as seven years, Mr. Paynter says. “The worse a building was before the quicker your payback time is. That’s why these 50-year-old buildings make a lot of sense to retrofit. They’re costing many times more than they cost to heat in the 1970s.”
Office demand expected to increase post-COVID-19
Research by Colliers International finds vacancy rates continuing to increase across Canada in the short term, but demand is destined to return quickly, Colliers analyst Roelof van Dijk predicts.
“We do anticipate office vacancy rates rising this year, plateauing late this year and then recovering in 2022,” he says. The speed of recovery depends on the market. “For instance, a lot of new supply is coming on stream in Toronto, but even though there may be a bit of bouncing up and down on vacancy rates this year, by late 2022 you’re going to see vacancy rates plateauing, and in late 2023 you’re going to see vacancy rates coming back down.”
There is also employment growth in the many office areas. “Finance and insurance, real estate, scientific and technical services and the tech sector are all seeing employment growth. At some point they are going to need office space to accommodate them,” Mr. van Dijk says.
Colliers projects that people will not continue to work exclusively from home, and even if employees are coming in only three or four days a week, they are going to need office space allocated to them.
“We know the vaccine rollout has been less than ideal, but by the end of October, everyone who wants to be vaccinated will be,” Mr. van Dijk says. “And then you’re going to see higher attendance levels in offices and a return to shopping.
“We’re seeing that in Asia where they dealt with the COVID-19 outbreak better and have seen office attendance levels come back to where they were pre-COVID.”
So now might be a prime time for Canadian landlords to take advantage of the current lull and make improvements to set them up for a competitive future, he suggests.