Downtown Toronto’s 33 Yonge Street will rebrand to Berczy Square after the neighbouring eponymous park, with its exterior designed by Gensler.Supplied by GWLRA
Picture this: Your commute ends in a lobby with soaring stone pillars and a nine-storey indoor trellis that’s cascading with live greenery. A series of art is featured on 80-foot digital display as you pass by a calming pond before the workday ahead.
These are just some of the design plans for 33 Yonge St., a 42-year-old office building in downtown Toronto that is rebranding as Berczy Square after the neighbouring Berczy Park.
Home to GWL Realty Advisors (GWLRA) – one of Canada’s largest real estate companies that also manages the property – and Altus Group, a commercial real estate intelligence firm, 33 Yonge will undergo renovations that are expected to be complete by fall 2025. Part of the upgrades include five new high-end dining options that serve different cuisines such as French, Italian and Latin.
The office is classified as a ‘Class A’ building, meaning it’s a premier space in a prime location with high-quality finishes. Commercial buildings can also be classified as ‘Class B’ or ‘Class C.’ The former refers to buildings slightly less central that are accessible to transit and in good condition, while the latter tend to be less well-maintained and in more isolated locations.
“[33 Yonge] has great bones, so we just needed a new design that matches what tenants expect in the modern age of employee attraction and retention,” says Steffan Smith, the executive vice-president of asset management at GWLRA. “It’s not necessarily an Instagrammable moment, but tenants want something unique that they can attach their brand to.”
Owners will continue to offer upgraded amenities
The newly designed 33 Yonge Street is set to finish renovations by fall 2025 – complete with a new interior lobby designed by Dialog Design.Supplied by GWLRA
Updating amenities to entice employees to return to office is just one trend highlighted by the CBRE in its recent report on Canadian office figures.
These amenities include everything from boutique gyms and sleek dining options to bike storage and shower facilities. “Historically, owners of real estate in Canada have not really invested in building amenities in a way that aligns with tenant interests,” says Marc Meehan, CBRE Canada’s managing director of research. “This shift is a good thing. It’s good for tenants. It’s good for their employees.”
The first half of 2024 has seen some welcome stability in key areas, the report shows. Office vacancy rates and sublet space for downtown Class A buildings declined, while eight out of 10 markets saw more space leased than vacated. Nationally, the overall office vacancy rate held at roughly 18.5 per cent over the past year, with a lack of vacancy growth indicating a slowly improving market.
New supply high, construction will remain low
Office construction is at a 19-year low at just 5.7 million square feet, compared with the 10-year average of 14.6 million square feet, according to the CBRE’s recent report. However, Canada still had a strong start for new supply in 2024, with three new buildings delivered – the highest since 2017.
In Toronto, 160 Front St. – also known as TD Terrace – offers 1.26 million square feet of space in a 47-storey glass and steel office tower, a striking addition to the city skyline. The National Bank of Canada also opened two new office towers at 700 and 800 Saint Jacques Ave. in Montreal, complete with a daycare, 400 bike parking spots and more. All projects were delivered nearly or fully preleased.
New construction starts have petered out, with only three small projects under 30,000 square feet begun in the second quarter of this year. Mr. Meehan remains cautiously optimistic and acknowledges that the next wave of development won’t be new builds. “We’ve built a lot of Class A space and so it’s going to take a bit of time to go through that. But as tenants start to prioritize high-class buildings in the markets with good transit accessibility, eventually we’re going to run out of those buildings. I think that’s what’s going to kick off the next development cycle.”
Class B buildings will retrofit and renovate
While older and farther from prime downtown locations, Class B and C buildings will continue to play a key role in the market. To remain competitive, some of these owners are assuming the high costs to upgrade their facilities. These retrofits will help address the eventual lack of new Class A supply, add or upgrade amenities to attract and retain employees, and ensure compliance with emerging environmental, social and governance (ESG) rules.
The gap between vacancy rates for Class A and B/C buildings has widened in downtown locations, with Class A buildings showing a vacancy rate of 16.4 per cent and Class B/C buildings showing one of 25 per cent. “There are a wide range of buildings that fall within this B class, and many are doing quite well,” says Mark Fieder, principal and president at Avison Young Canada. “So long as owners continue investing in their assets, the gap between A and B class won’t widen.”
More incentives for office conversions
The National Bank of Canada recently opened two new buildings on St. Jacques Street in Montreal.Supplied by National Bank of Canada
The city of Calgary was the first to offer an incentive program to entice downtown office owners to convert underused buildings into mixed use and residential rental units, amenities and other services.
Calgary’s first office conversion, the Cornerstone, opened in June and offers commercial space for up to 50 retail businesses, as well as 112 two- and three-bedroom units. “Adaptive reuse contributes to the revitalization of neighbourhoods,” says Mr. Fieder. “Granted, conversions are not simple because buildings must meet criteria … and these projects are often costly, but if we can see public and private partnerships, such as what is happening with Calgary’s incentivization program, it would help pave the way.”
Municipal incentive programs are required to make conversions worthwhile for office owners, and more cities are coming on board. Last quarter, 10 conversion projects were initiated across five markets. “The reason that it has worked in Calgary is because they offered $75 a square-foot, and that allows you to buy that building for the cost of the land. If you’re able to buy the land value, then it’s more appealing to owners,” Mr. Meehan says.
Over all, office conversions are a small part of the market, comprising just six million square feet – less than 2 per cent of inventory – since 2021. But there’s a real desire to help within the commercial real estate sector. “The affordable housing crisis is real,” says Mr. Meehan. “[Calgary]’s done a great initiative, we should be doing more of it and finding ways to support it.”