Downtown Decline - Future of Toronto's Downtown Core

[yrt+viva=1system]

There wasn't an appropriate thread that covers the current situation of the vacant downtown core but this issue straddles both the urban life and politics realms. It's well documented that Toronto is a laggard when it comes to back to the office for work and this is starting to cause problems with the vitality of the core and the hollowing out process. There's ideas being thrown around from complete demolishment of office building to converting office buildings into much need residential space but so far no concrete plans and then there's the problem of politics and bureaucracy getting in the way of any sort of transformation.

This would be a good thread to discuss what the future of the downtown core may become. I'll start off with these two articles from The Globe and Mail and the Toronto Star:

In a hybrid work world, Toronto’s downtown core faces an existential crisis​

https://www.theglobeandmail.com/canada/article-toronto-downtown-businesses-hybrid-work/

With a glut of office space and a shortage of housing, many cities are seizing on the prospect of conversion. In most cases these are easier said than done, made difficult by the scale and layout of many office buildings. Toronto’s downtown also remains particularly unfertile territory for this sort of work, with a city bylaw that legally protects office space in the financial district.

The city could not readily provide the number of recent conversions, but municipal staff said that very few had been completed since 2016, and most of those retained at least some office space. Only two applications for full conversion have been made since the pandemic began in 2020.

One of those projects is owned by H&R REIT. It wants to convert 69 Yonge St., the historic Canadian Pacific Building, entirely into residential. H&R argues that the structure’s age and design makes it unviable for today’s commercial office market, but the REIT wants to retain the exterior of the 15-storey heritage building, which was once the tallest in the British Empire.

“We want to find a way to give this building another 100 years of life, but for us to make that investment it cannot have any office,” said Matt Kingston, executive vice-president of development at H&R. “Even if it cost us nothing, there really is not much of a future in a building like this for office uses.”

He argues that the city’s conversion bylaw is outdated and too broad, not taking into account specific cases such as H&R’s project. But he declined to say what the firm’s next step might be if the city turns down its application.

Toronto chief planner Gregg Lintern acknowledged that the bylaw could prevent some repurposing, but the city is reluctant to move too quickly to change the rules. He pointed out the value of preserving office space in proximity to Union Station, one of the busiest transportation hubs in the country.

https://www.thestar.com/business/20...ers-could-last-at-least-two-more-decades.html

Knocking down office buildings cheaper​

“It’s not as easy as people think it is. And there are only a handful of existing properties that would even be a candidate for it,” said Savoie, who is also a senior vice-president at Dorsay Development Corp.

In some cases, knocking the office buildings down and putting up something new makes more sense, said Savoie. In a few cases, retrofitting it to convert it into a condo building is more tempting, she added.

“Sometimes it would be cheaper just to take it down and start from scratch. But sometimes it has great structure and great bones and you have a lot to work with,” said Savoie.

Still, she added, most municipalities have strict rules about converting commercial buildings into housing, or even tearing one down and replacing it with a condo tower. Many municipalities also require an office or employment component in any new mixed-use development. That means, Savoie argued, that developers are being asked to build office space for which there’s no demand and that governments need to re-examine zoning policies.

Veteran real estate analyst John Andrew said encouraging a pipeline of new office construction may have made sense in a pre-COVID world, but agreed that governments now need to shift their thinking. Anything, he said, is better than offices sitting empty.

“If a developer wants to build condos, for god’s sake, let them build condos because at least it’s going to put more people downtown,” said Andrew, a retired real estate professor from the Smith School of Business at Queen’s University. Most excess office space can’t be converted into residential buildings for engineering reasons, Andrew added. That means, if zoning rules are eventually loosened, Toronto could see wrecking balls coming out in a big way.

“We’re going to start to see a tremendous wave of demolition happening. Companies are going to say ‘you know what? It’s worth the cost and the delay to completely level this building to the ground and start new,’” said Andrew.
“I think we’re going to start to see 50-storey office buildings being demolished.”

 

[Towered]

I work downtown and it seems plenty busy. Traffic is as bad as it ever was (maybe even worse than before Covid), and there are tons of people walking the streets. Restaurants often seem packed. I'm not sure that there's a crisis because on the ground it sure doesn't seem like it. Of course this is just anecdotal.

 

[AlvinofDiaspar]

I work downtown and it seems plenty busy. Traffic is as bad as it ever was (maybe even worse than before Covid), and there are tons of people walking the streets. Restaurants often seem packed. I'm not sure that there's a crisis because on the ground it sure doesn't seem like it. Of course this is just anecdotal.

The part that is in relative trouble is the Financial district.

AoD

 

[mettle]

Google to crack down on office attendance, asks remote workers to reconsider

Google's HR chief told workers that office attendance will be more closely monitored

www.cnbc.com

"The company said it will include office attendance in performance reviews and track badge data."

i wonder if google canada will do this.

 

[mettle]

i work downtown too. it's busyish, but it's terribly sad to see the number of stores boarded up.

 

[jje1000]

One interesting term I've heard recently is the 'doom loop' specifically referring to San Francisco- where issues of homelessness, crime/safety, budgetary deficits, and unaffordability repeatedly compound to make cities unlivable. Overall though, I believe that some of these issues caused by San Francisco-specific policies (especially their liberal treatment of crime), though some of these resultant situations below have their echoes in Toronto.

Cities are struggling. San Francisco could be in for the biggest ‘doom loop’ of all

Economic forces could doom San Francisco to fiscal calamity. Could it be avoided?

www.sfchronicle.com

Interconnected forces trap the city in economic free fall: Workers remain primarily remote; office space sits empty; businesses shutter; mass transit is sharply reduced or even bankrupt, making it even harder for low- and middle-wage workers who enable restaurants and small businesses to operate, causing major budget shortfalls from declining tax revenue that imperil numerous city services, trigger mass layoffs of city workers and shred the social safety net, all of which causes more people to leave.

Others argue that this amounts to magical thinking and a major re-imagining of the city is needed. Though many American cities are struggling in the wake of COVID, San Francisco is perhaps in the greatest peril of them all. The city is heavily reliant on technology and other knowledge industries that lend themselves to remote work, and there is little evidence that employees will return to offices more than two or three days a week. Those offices dominate the urban core, which has few people living there, keeping downtown a hollowed-out shell and less appealing to people who don’t need to work there. Meanwhile, a shortage of affordable housing, sky-high commercial real-estate prices and political polarization persist. Public safety and tourism also would be affected by cuts to policing. The homelessness crisis would worsen.

BART was designed to feed the city’s economic core and has leaned heavily on fare revenue from those workers. The switch to remote work decimated ridership, which in January was about 40% of pre-pandemic levels systemwide and 28% for downtown exits. The transit service’s budget forecasts show an expected $300 million deficit by 2026. As a result, the coming years could see widespread layoffs and service cuts, including shuttered stations, long waits between trains at remaining stations during weekdays and an end to weekend service. Even those cuts wouldn’t secure the agency’s future and, worse, they’d likely deter riders, further hurting revenues. And its impact would be felt throughout the city. “We believe it is reasonable to assume ridership losses would be almost immediate,” said BART spokesperson Alicia Trost. “From there, we would last as long as our reserves could carry us.”

In San Francisco, more than 7% of residents working in computer, engineering and science fields moved out of San Francisco from 2019 to 2021, U.S. census data shows. While that’s a meaningful hit to the city’s tax revenue, it’s not a threat to the city’s tech industry, Egan said — unlike if tech workers left the Bay Area, because then they couldn’t return to downtown in the future and seed the area’s revival. As of 2021, only about one-quarter of 1% of tech workers left the San Francisco metropolitan area, which includes Oakland and Berkeley. The sector has suffered substantial layoffs since last year, with signs those workforce reductions could last through this year.

But San Francisco’s recovery is also threatened by the flight of lower-wage workers. The city lost 55% of food-service workers from 2019 to 2021, 34% of service workers, 33% of people in sales and 26% of office administrative workers, to name a few. Many cannot afford to live in the city, while higher-cost commuting options are driving them to seek jobs closer to home.

i work downtown too. it's busyish, but it's terribly sad to see the number of stores boarded up.

I think the fix is long-term, and involves introducing more residential components to traditional CBDs to help extend business activity. Ultimately the work-from-home genie is out of the bottle, and will never really be put back in.

 

[EddyMCD]

There is definitely a lot of activity happening downtown now, but there are still a ton of empty retail spaces (and offices). The offices will be very hard to fix, but it would be nice to see retail rental rates come down to hopefully fill up some of the unused space.

 

[Jonny5]

One interesting term I've heard recently is the 'doom loop' specifically referring to San Francisco- where issues of homelessness, crime/safety, budgetary deficits, and unaffordability repeatedly compound to make cities unlivable. Overall though, I believe that some of these issues caused by San Francisco-specific policies (especially their liberal treatment of crime), though some of these resultant situations below have their echoes in Toronto.

San Francisco's downtown has unique geographic issues to commuting that don't exist in Toronto. Getting there from suburban locations has never been easy because of the geography and the hard limitations on development around it. It was really the most vulnerable to the work-from-home change. Toronto has far more resiliency in its design and I expect downtown to be mostly back to normal in a year.

The work from home genie is out of the bottle, but it's also now being partially shoved back inside.

The open secret in the financial district now is if you want to avoid being in the next round of layoffs and to maximise your bonus, you show up at the office four days a week. And I agree with that. My colleagues who still insist on working from home four days a week have become utterly useless. I made sure to let my manager know.

 

[Northern Light]

San Francisco's downtown has unique geographic issues to commuting that don't exist in Toronto. Getting there from suburban locations has never been easy because of the geography and the hard limitations on development around it. It was really the most vulnerable to the work-from-home change. Toronto has far more resiliency in its design and I expect downtown to be mostly back to normal in a year.

The work from home genie is out of the bottle, but it's also now being partially shoved back inside.

The open secret in the financial district now is if you want to avoid being in the next round of layoffs and to maximise your bonus, you show up at the office four days a week. And I agree with that. My colleagues who still insist on working from home four days a week have become utterly useless. I made sure to let my manager know.

Agreed, but lets add something more.

Downtown SF has a residential population of ~40,000; downtown Toronto has a residential population of ~300,000 or just under 8x the number. Very different scenario.

 

[junctionist]

The open secret in the financial district now is if you want to avoid being in the next round of layoffs and to maximise your bonus, you show up at the office four days a week. And I agree with that. My colleagues who still insist on working from home four days a week have become utterly useless. I made sure to let my manager know.

It depends on the industry. If instead of commuting, you're turning that time into more billable hours or sales, the manager may be proud.

 

[rdaner]

Agreed, but lets add something more.

Downtown SF has a residential population of ~40,000; downtown Toronto has a residential population of ~300,000 or just under 8x the number. Very different scenario.

Interesting. More people live in MCC which is at 60 000!

 

[afransen]

Interesting. More people live in MCC which is at 60 000!

The differences between Canadian and US cities is pretty amazing!

 

[jje1000]

Another reiteration from the Star:

‘This will get worse before it gets better.’ Office vacancy rate in Toronto hits highest level in nearly three decades​

Commercial real estate firm CBRE says the national office vacancy rate rose to 18.1 per cent in the second quarter, up from 17.7 per cent in the first quarter.​

The perfect storm continues.

A new study by commercial real estate firm CBRE found that the vacancy rate for downtown Toronto office space hit 15.8 per cent in the second quarter of 2023, the highest it’s been since 1996. That’s up from just two per cent in March 2020, when the pandemic was declared.

The work-from-home trend that gathered momentum during the pandemic, fears of an economic slowdown and layoffs in the tech sector have been a triple whammy for office space, said Michael Case, managing director of CBRE’s downtown Toronto office.

“It’s a bit of a perfect storm right now.”

The downtown office vacancy rose half a point from 15.3 per cent in the first quarter, as an extra 502,545 square feet of office space came available. Case expects the vacancy rate to rise to 18 per cent by the end of 2023.

“This will get worse before it gets better,” Case said.

Among the reasons? Many companies are only partway through long-term leases, and still haven’t had to sign new ones since the pandemic accelerated the trend toward working from home, Case said.

While workers are starting to come back, the days of employees being expected to work in the office five days a week are likely gone for good, said Case. That means companies are needing to rethink how much space they actually need.

“The hybrid work model is here to stay,” Case said.

Over the last year, as the tech industry has been hit by a wave of layoffs, and the collapse of Silicon Valley Bank, Toronto’s office-space market has also seen a big effect, Case added.

“When the vacancy rate was at two per cent, a lot of that demand was coming from tech companies,” Case said.

Across Canada, the overall office vacancy rate hit 18.1 per cent in the second quarter, the highest it’s been since 1994. The hardest hit major city is Calgary, where office vacancy is at a whopping 29.2 per cent.

In May, a report prepared for the Toronto chapter of the National Association for Industrial and Office Parks found that the glut of office space could continue for the better part of another two decades. Economist Peter Norman, who prepared the report for the NAIOP, warned vacancy rates in the GTA could spike as high as 46 per cent in the years ahead.

While acknowledging that things will get worse before they get better, CBRE’s Case said that some kinds of office space are better positioned to survive the downturn. Top quality buildings — particularly newer ones — in high-profile, desirable locations are in better shape than older ones on the periphery, said Case. As companies are deciding they need less space, they’re opting for better locations, in offices that are “built out,” or move-in ready.

“There’s been a real flight to quality. They want to put their employees in the best buildings, with the best amenities in the best locations,” said Case. “A lot of our clients are looking for space that’s close to Union Station, so everyone can get there easily.”

“Suburban” Toronto office space, which includes some parts of the City of Toronto not in the downtown core, has a 20.5 per cent vacancy rate.

Older buildings in less desirable locations, which require some remodelling or refinishing before tenants move in, are struggling more, he added.

“If you’re in a B-class building, and it’s not built-out, it’s going to be sitting vacant for quite some time,” Case said.

‘This will get worse before it gets better.’ Office vacancy rate in Toronto hits highest level in nearly three decades

Commercial real estate firm CBRE says the national office vacancy rate rose to 18.1 per cent in the second quarter, up from 17.7 per cent in the first quarter.

www.thestar.com

 

[nstuch]

Interesting article about New York

New Glut City

The city’s mega-office landlords are panicking, pivoting, and shedding what’s worthless. One opens his books.

www.curbed.com

 

[Memph]

Agreed, but lets add something more.

Downtown SF has a residential population of ~40,000; downtown Toronto has a residential population of ~300,000 or just under 8x the number. Very different scenario.

That's using rather different boundaries. Toronto has those kinds of numbers in a roughly 5-6 square mile area (Yorkville to the lake, Don River to Spadina/Bathurst). A comparably extensive area of Downtown/Central San Francisco will have far more than 40,000 people. I'd say upwards of 150,000 people, depending on the exact boundaries.