Huge holes to plug in Toronto's AAA office towers

The ongoing rout in the global stock markets will have an extensive impact on many a family and firm. It is now accepted wisdom that a U.S. recession is nigh (see prior posts “Some U.S. Recession Hints” February 14-07 and “Buckle up – the wheels have come off” August 13-07), and the fear of a spillover into Canada appears to be having an impact on the Canadian federal election. With cranes still high in Toronto’s skyline, one can begin to imagine what all of this may mean for Toronto’s commercial landlords.

As times were good, and businesses expanded, per square foot gross rents rose by as much as 35% between 2005 and early 2008. In Calgary, one needed to move to a “B” building if you wanted to keep prices down. But, with all of Toronto’s building, huge office spaces will soon be opening up. As much as some landlords will be smiling for some time to come (think Brookfield and Oxford), the folks who own 250 Yonge Street or the Toronto-Dominion Centre must be highly concerned about what has become of their customer base.

Here’s why:

Commerce Court West

KPMG – exiting about 10 floors of Commerce Court West in 2009, going to Bay Adelaide. CIBC – has about 9 floors coming open in Commerce Court West in 2010. Commerce Court West might have 31.5% of its space looking for a home

66 Wellington Street West

Fasken Martineau – exiting about 6.5 floors (11.5%) of 66 Wellington Street West and going to Bay Adelaide.

250 Yonge Street

Goodmans – exiting about 6 floors (22.6%) of 250 Yonge Street (Cadillac Fairview) and going to Bay Adelaide.

Royal Trust Tower

RBC Investments and RBC Dexia – exiting about 17 floors of Royal Trust Tower (leaving 40% vacant) and going to new RBC Centre at 155 Wellington Street West.

Throw in the Telus Building at 25 York Street, Maple Leaf Square South Tower at 15 York Street (Cadillac Fairview), and the rest of RBC Centre, and there is plenty of space to go around. At last check, there are about 3 million square feet — or 10% of downtown inventory — available as early as next year. Imagine one massive empty office building, and you’ve got a good sense of the picture.

MRM