A flurry of downtown office development in Toronto, Montreal and Vancouver, is being driven by a Class-A office vacancy rate that Toronto-based Royal LePage Commercial Inc. forecasts will sag to a record low of 6.4% this year.

The forecast predicts vacancy rates from a squeaky tight 1.7% in Ottawa to a more recently familiar 12.6% in Edmonton, Alberta. Rising rental rates, lease rollovers, steady demand and a robust national economy promises to keep vacancy rates low, despite the new space.

Colum Bastable, president and CEO of Royal LePage Commercial, notes that some companies may move to the suburbs where there is greater supply, but "demand for downtown space will pose significant problems for tenants who need more space to grow," he said. "How that will be addressed over the next two or three years in the absence of more new buildings is unknown."

Montreal — last out, first back in

Montreal was stuck in the last recession longer than any other major Canadian city, but its economy has rebounded so strongly it now has the largest volume of Class-A and renovated office space planned or under construction.

Most of the development is concentrated on the periphery of historic Old Montreal, including a 500,000 sq. ft. headquarters for the Caisse de dépôt et placement du Québec, Canada’s largest fund manager — with assets of $C105 billion — scheduled for completion next year.

A few miles west near Montreal’s waterfront, the sprawling Cite du Multimedia R&D complex is also under construction. By the end of 2000, the development had attracted 73 local, U.S. and French subsidiaries, which develop interactive, computer-based products using various media, including words, pictures, sounds and video.

The $C360 million project, begun in 1998, is designed for 10,000 workers in 1 million sq. ft. of renovated and new space when it is completed in three years.

By far the most ambitious development, the 3.2 million sq. ft. E-Commerce Place, is aimed at attracting high-tech companies to new mid-rise towers on the fringe of Montreal’s downtown core.

However, construction of the $C700 million project in its current form is not assured because of local development-industry opposition to provincial government subsidies for employee payrolls which will attract tenants away from their projects.

If all goes as planned, more than 20,000 workers are expected to occupy E-Commerce Place upon its completion by 2010.

A Toronto/Ottawa connection

O&Y Properties Corp. broke ground on its 20-story, 430,00o sq. ft. tower in early November in downtown Toronto, with Maritime Life Assurance Co., Halifax, Nova Scotia, as the anchor tenant. The company leased 150,000 sq. ft. to consolidate nearly 1,000 employees when the $C120 million building is completed next year.

This is the first office building to be built in downtown Toronto in nearly 10 years, offering technologies that have become indispensable. Philip Reichmann, CEO of O&Y Properties, put it this way: "The important thing is to have the capacity to accommodate whatever technology surfaces later, to have lots of risers so tenants can pull cables through them, a lot of power, back-up power and cooling.

"The future is in fiber-centric applications, such as enhanced conference calling and streamed business television over IP (Internet Protocol), and other applications," Reichmann said.

O&Y Properties also plans to start construction on two Class-A office towers in downtown Ottawa. One will be a 20-story, 300,000 sq. ft. tower, while the other will be 17-story, 200,000 sq. ft. tower.

The only other Class-A building competition is the 240,000 sq. ft., mainly leased, World Exchange Plaza, heading for a late 2001 completion a few blocks away in downtown Ottawa. Reichmann says a few other office developments are working their way into the approval process.

O&Y Properties isn’t the only developer working downtown Toronto. Jon Love, president and CEO of Oxford Properties Group Inc., Toronto, expects to proceed with a 720,000 sq. ft. office tower in 2001. "We will go back to a period of more normal supply additions, as warranted by increasing demand for product," Love says of the city’s demand/supply equation.

Not far behind is Chicago-based Higgins Partnership LLP’s proposed 800,000 sq. ft. office tower, to be integrated with the city’s main subway, train and commuter bus terminal.

Vancouver’s modest development scale

Vancouver’s office market, relatively unscathed during the last recession, is expanding slowly. Mark Shuparkski, president and CEO of Bentall Corp., Vancouver, British Columbia, says his company plans to start on a 300,000 sq. ft. downtown office tower in 2001.

The building will be built in two phases — 20 stories and a temporary plaza first, followed by another 14 stories on top. Also planned are a ground-floor retail/office/food pavilion, a permanent plaza and underground parking.

One positive aspect of commercial real estate development rippling across Canada’s urban centers is the lack of the overbuilding of the 1980s that helped precipitate the last recession. This is a very disciplined market, as the industry likes to call it.

Albert Warson is a Toronto-based writer.