The view seen from 121 King St. W. – a recently renovated 26-storey tower in downtown Toronto.Wallace Immen/The Globe and Mail
The granite and glass-clad tower at 121 King St. W. – situated in the heart of Toronto’s bustling Financial District – is surrounded by the headquarters of Canada’s largest banks and insurers, boasting one of the city’s most prestigious locations.
But despite its prime area, close proximity to transit and nearby amenities, the 26-storey tower – built in the 1980s – has seen some tenants move to newer buildings downtown, while others have contemplated downsizing their space as employees continue to work remotely.
Encouraging a return to office is why updating 121 King St. W. was a priority when Crestpoint Real Estate Investments Ltd. bought it in 2022, says Max Rosenfeld, the company’s head of asset management.
Since then, a sweeping renovation has transformed the building’s lobby, brought in high-tech elevators and turned a floor into a multipurpose lounge that’s available for use by all building tenants.
The upgrades, completed in October, have already attracted four new leases to the tower, which has been rechristened Roserock Place. The building’s vacancy rate is also currently only 8 per cent – down from 18 per cent before the renovations, Mr. Rosenfeld says.
The war between new and old office buildings
Other older buildings across Canada are facing similar challenges to 121 King St. W. as office vacancy rates soar.
The national office availability rate reached a record high of 18.2 per cent in the third quarter of this year. However, new and recently renovated buildings in prime locations are faring better because of a push toward better-quality towers, Altus Group – an asset and fund intelligence provider for the commercial real estate industry – reported in its quarterly Canadian office market update.
Despite slowing overall demand, newer Class A offices – those in prime locations with high-quality finishes and upgraded amenities – remain in relatively high demand, the update found. At the same time, older and less well-located office buildings – known as Class B or C – are seeing vacancy rates rise. To keep the more outdated buildings competitive, Altus Group says, landlords will need to invest in upgrades.
From outdated offices to revitalized residential structures
In Toronto, many Class B and C buildings may lose money if they continue to operate, says Scott Figler, director of Canada research for real estate services company JLL, which recently released a study that recommends demolishing less competitive office towers and replacing them with residential buildings.
“If you have tenants leaving, you have less cash flow and less to invest in upgrades, and that will make it even harder to attract tenants,” Mr. Figler adds. “That’s the future for many of these older buildings.”
Mr. Figler identified dozens of Toronto buildings with landlords proposing to replace them with mid- or high-rise apartment structures. However, he says, these plans are being blocked by a city bylaw protecting office space.
He points to a landlord that owns an underperforming 100,000-square-foot office building at Yonge Street and Eglinton Avenue and wants to demolish it to construct a new high-rise residential tower with 500 units. Under the decades-old Toronto bylaw, the developer is obligated to build an equivalent amount of office capacity – in this case, 100,000 square feet – either in the new development or at another location, Mr. Figler says.
The newly dubbed Roserock Place at 121 King St. W. is now equipped with a lounge available to multiple building tenants that includes comfortable areas to work, small meeting rooms and a dividable conference zone that can accommodate up to 120 people.Wallace Immen/The Globe and Mail
Challenging a city bylaw
JLL’s study urges the City of Toronto to repeal the bylaw, saying replacing underperforming office towers with residential buildings could create more than 50,000 much-needed housing units and increase occupancy rates in more modern structures.
In July, the city’s planning and housing committee issued a recommendation to relax the replacement requirements for office buildings. Toronto’s council is expected to review the recommendation in early 2025, Mr. Figler says.
In Alberta, Calgary is grappling with similar issues, though the city has implemented an incentive structure to help developers address the problem. Calgary’s Downtown Development Incentive Program removes vacant office space from the market through adaptive reuse. Since its inception, it has added new residential and hotel spaces to the city.
A case study for office amenity upgrades
For Brendan Sullivan, senior vice-president at commercial real estate services firm CBRE, landlords of all office buildings must consider that the flight to quality office space means tenants will have better experiences in offices. “What tenants are looking for is elevated amenities that entice employees back to the office,” he says. “Buildings that are delivering them will be the most successful.”
Toronto’s Roserock Place is a case study in upgrading amenities, Mr. Sullivan says. A highlight of the project was to turn a vacant floor – with some of the best space in the building – into a lounge that includes comfortable areas to work, small meeting rooms and a dividable conference zone that can accommodate up to 120 people.
The lounge also has a stocked bar for special events, with a games room that includes golf, basketball and slapshot simulators. “It also has a community manager whose job is to organize tenant uses of the space,” Mr. Sullivan adds. “That’s important because unless you have someone who is fostering the community’s use, the amenities could be forgotten about.”
Mr. Sullivan is convinced his sector has seen the worst of the rising office vacancy numbers.
“The general view across the country is brightening,” he says. “Our hope is that as demand increases, even lower-rated buildings on the periphery that make themselves more attractive will recover well.”