Commercial owners invest in quality to keep older buildings competitive

Reinvestment in buildings in Calgary, Edmonton and Toronto — to keep them competitive — will be essential even if the office market recovers.Getty Images/iStockphoto

A cluster of office towers along Jasper Avenue has been the commercial heart of Edmonton for a quarter of a century. But things have changed recently as new office towers sprout around Rogers Place, a few blocks north.

As major tenants moved into newer buildings with more amenities, some older Class A buildings found themselves nearly vacant. In the city centre, vacancy rates were above 13% before the pandemic and are now around 18%, with older Class A buildings up to 21%.

As available space increases, we’re going to see owners become much more competitive in offering attractive pricing structures, but also investing in their buildings and halls.

— Jon Ramscar, National Managing Director at CBRE

“We are seeing a flight to quality, to new products with state-of-the-art mechanical and HVAC systems, larger floor plates, and offering lifestyle and amenity-rich environments and social centers. “, says Mark Hartum, director at Avison. Young in Edmonton. To stay competitive, owners of older buildings are investing heavily in renovations that add co-working space.

The flight to quality has grown in cities across Canada in the wake of the pandemic as tenants want facilities that attract workers used to working from home to the office, says Jon Ramscar, national managing director of Toronto-based CBRE.

With vacancy rates at historically low levels before the pandemic, he says, landlords had less incentive to invest in fully leased buildings.

“But as the space available increases, we’re going to see owners become much more competitive in offering attractive pricing structures, but also investing in their buildings and halls,” he explains.

103 Street Center Edmonton features a new social staircase with a ground floor lounge.Merle Prosofsky Architectural Photography Ltd.

The 2680 Skymark galley was built to Crown specifications.Crown Realty Partners

“Ventilation and touchless surfaces are big demands due to the pandemic and most quality buildings have improved their air filtration and handling and made access points and devices in washrooms touchless. contact over the past two years,” he said.

But now features as simple as cafes and bike storage facilities for those who commute by bike have become important differentiators as potential tenants consider an office move.

State-of-the-art technology is essential as technology companies are driving demand for office space seeking new Class A buildings in North America, he adds. It also increases the demand for buildings to consider environmental, social and governance factors to achieve net zero, which will have a huge impact on future investments.

“The market was so tight for space before the pandemic that anyone could rent space, no matter how much space they had,” says Scott Watson, managing partner, acquisitions and leasing for Crown Realty Partners, whose the portfolio includes 70 office properties in Toronto and Ottawa. “But today, when vacancies are among teenagers in many markets, it’s much more difficult,”

With supply outstripping demand, even normally competitive Toronto is seeing double-digit vacancy rates, he says. “The average tenant looks at four spaces before committing to an office building. And when you look at Toronto’s financial core, there are way more than four competing buildings. It’s more difficult to stand out, so you have to offer unique equipment to be attractive.

According to Watson, pre-building suites is a way to get a head start, as tenants want a space that is fully move-in ready. Crown has built custom suites in its buildings with efficient layouts and new finishes and application-compatible conference centers.

“We want our office experience to be fresh and inviting from the moment you walk through the doors of our building to the moment you sit down at your workspace,” he adds.

In the past, Crown’s pre-built suites rarely exceeded 3,000 square feet. But “recently, we have increased these sizes; we have one under construction right now which is a full floor of 21,000 square feet at a cost of around $1.2 million, hoping to attract a tenant and compete with the new spaces that are out there.

Reinvestment in properties to keep them competitive will be essential even if the office market recovers, says Hartum. “The alternative is to compete on price alone, which is not ideal [because] if landlords do not realize sufficient economic rent, the result will be less capital available to reinvest in the building and its systems.

“In the long term, this is not a good solution, and forces tenants to shop around and keep emptying these older buildings. It’s not healthy for the market as a whole.

Edmonton landlords have been inventive and invested in reconstructions that are attracting new tenants to vacated buildings, he notes. One example is the 22-story 103 Street Center near Jasper, built in 1980. Most of its space was freed up when Enbridge decided to consolidate its offices into a new building.

To rebound, AIMCo/Epic Investment Services rebuilt the 103 Street Center for Edmonton’s growing tech community. The lobby and the second floor were connected by a “social staircase”, with bleacher-like seating for people to sit and converse or work on a laptop, as well as flexible presentation space for more 100 people on the ground floor.

Other additions include a conference center, meeting rooms, tenant lounges, a game room, and a kitchen and dining room. It’s been so attractive to new tech customers that the vacancy rate has dropped from 95% to just 22%, “which is still high, but it’s really been a substantial turnaround,” Hartum says.

In another building known as First and Jasper, managed by GWL Realty Advisors, Avison Young was hired to manage the ground floor project of the 20-story building on Jasper Avenue which housed tenants business in difficulty.

The space has been rebuilt into tenant-focused amenities, including a lobby refresh, fitness and wellness center, conference and meeting center, package warehouse, and concierge desk, Mr. Hartum said. The building is also pet-friendly, which isn’t common in Edmonton, he adds.

The intention is to continue adding new tenants similar to tech companies that have recently joined the building, including Google DeepMind which is opening its first AI research labs outside Britain.

Crown has built custom suites in its buildings with efficient layouts and new finishes and application-compatible conference centers.Crown Realty Partners

Edmonton landlords have been inventive and invested in reconstructions that are attracting new tenants to vacated buildings.Merle Prosofsky Architectural Photography Ltd

Interest in leasing has increased significantly across Canada as the closures end, “but we’re still waiting for many large organizations to commit to their longer-term office plans, whether it’s renewing leases, reduce their space requirements or even increase their footprint to accommodate new employee amenities or business expansion,” says Ramscar.

Tenants who may have sublet space during the pandemic are now clinging to it while waiting to see how quickly workers return to the office.

“Rental activity is expected to increase over the remainder of the year as occupiers make decisions about their office spaces,” says Mr. Ramscar, “and we fully anticipate a continued focus on the flight to quality.” .

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