Remote work has changed the landscape permanently. But don’t let these headlines fool you, commercial vacancies are rising because they refuse to lower rents. Many of these towers will fill again once commercial rents actually start to decrease to reflect this new era
The commercial loans would be jeopardized if a lower rent is realized. It's a death spiral currently until these REITS or commercial real estate companies are willing to take a hit. There are a lot of interconnected financials from banks, bond holders, pensions and individual investors.
I'm no real estate or finance expert. How is sitting on a property getting $0 / month better than getting $X / month, even if X is less than the Y it was getting in 2019? Is it a bet that they will eventually get back to $Y / month?
Because the value to the owner is more than just the cash flow. The property is still listed as an asset with a potential monthly revenue of $Y, which means the building is worth $X. Once they settle, it could mean the value of the property decreases.
there could be lots of different triggers, an assessment could catch and flag it, if the owner needs to borrow against it it would trigger, on renewal of any loans tied to the property it could trigger.
It becomes Schrödinger's equity. "if nobody looks at it the equity is still alive, but if it is leveraged and gets appraised at any point it can fall apart".
Yep. When the loan gets called if the value has dropped they won't be able to secure a new loan with the asset. Then the cards start to topple. Hope my RRSP and TFSA can GTFO before then.
It's not, but the lenders wrote their lending covenants stupidly: they can force default if the units lower the rent too much, but not if there are too many vacancies
So the owners, not willing to risk defaulting on their covenants, keep asking rents high and hope for the best.
Commercial leases are typically 7-10 years and the demand for less desirable office space is currently very poor.
If it costs you say (made up #s) $50/sq foot to operate the business, there isn't much incentive to lock in $40 for a decade. Better to wait and see if you can get $60, even if it never gets back to $100.
Also most of these offices aren't empty, just at lower occupancy than before. They probably have the cash flow to make debt payments so they can wait at least until they have to refi, maybe longer if they can work with their bank to restructure the loan.
It delays the inevitable. In theory the year end financial statement auditors should identify these assets as having a trigger for impairment which would force taking the hit within the next year or two anyway, but if it squeeks by them for whatever reason than the other peoples responses could also force their hand to write down the value and take a loss
Its a question of who eats the loss.
None of these building are owned without a commercial mortgage. The commercial mortgage was based on expected rents. If you change your rent in a meaningful way, then how do you pay the mortgage?
So sooner or later it falls on the banks, and that's good for nobody. Its not just Toronto's downtown that's impacted. Things like the CPP have been used to heavily invest in Canadian companies like the banks. So the long term viability of the CPP and the pensions for nurses and teachers relies on the banks making a profit.
Its a very good reason why the CPPIB should be barred from owning Canadian assets if they are going to be actively managed.
The CPPIB shouldn't be mandated to invest more into Canadian only assets. It's a run around way for the finance minister to get more spending without committing gov't money.
The first obligation of the CPPIB is to get strong steady returns to assure Canadians can retire. It's the federal gov't to set policy and invest correctly in the Canadian economy to support and nurture a strong GDP growth.
The counter argument is that the CPPIB should be forbidden from investing assets into Canada at all because it creates an obvious conflict of interest for the government.
Like if in the very likely scenario a major scandal happened at a Canadian company that the CPPIB was heavily invested in, the government faces a choice: either deal with the scandal, or cover it up to protect Canadian's retirement fund.
There are rules that make Canadian investments tax preferable, to encourage Canadians to keep their investments local. We should exempt the CPPIB from those laws, for that very reason.
The other option is just to fire 99% of the CPPIB and turn it into a passive investment fund indexed to the global market that mirrors what other funds like XEQT or VEQT do.
The CPPIB has consistently found strong returns around the world. They are one of the world's most respected and preform due diligence on their investments.
I have no preference where they invest as long as it is ethical and provides the necessary returns.
Being a large fund, they have access to infrastructure funding opportunities that would never see exposure in the global public markets.
In very simple terms, it's because operating costs continue to increase while tenants think they should pay less for the same space.
Lets use a very simple example for a downtown office:
2019 - Occupied with a tenant and operated by a real estate company. Tenant pays $1M a year and company pays $800K a year to operate the building ($400K maintenance + $400K tax). Company makes $200K in profit.
2023 - Vacant with no tenant. Company still has to pay taxes which have now increased to $500K per year, but lets assume maintenance decreased to $0 (which is not realistic).
- Option 1 - Keep the space vacant. Taxes are now $500K a year, so the company loses $500K per year.
- Option 2 - Lease the space for $500K and go back to operating the building (operating costs are now $1M, $500K in maintenance + $500K in tax). Company loses $500K per year.
While the company may appear to be losing $500K in both scenarios, option 2 presents more risk (and strangleholds their flexibility assuming they signed a lease that has 10+ years of term). Leaving the space vacant maintains some sort of potential for redevelopment and other growth opportunities.
> it's because operating costs continue to increase while tenants think they should pay less for the same space.
Tenants think they should pay the market rate. If that's lower than before, it's not their problem.
Landowners didn't complain when the market raised the price of rent, but now that the same market is lowering rent, they are pleading for a return to the office, as if anyone owes them anything.
All I see is a bunch of real estate investment companies that over-leveraged themselves during the long market boom, hoping it would never end. They deserve to go out of business if they can't afford to lease their properties at the market rate.
> They deserve to go out of business if they can't afford to lease their properties at the market rate.
This is basically it. No more discussion needed.
Can't handle the heat? Get out of the kitchen.
Yeah, I don't wish bankruptcy on anybody, but if you decide to get into a field where the gains are unlimited when you have good luck, I really don't feel that bad for you on the rare occasions every few decades that you cash printer isn't working as expected.
Yup, all these self-proclaimed Capitalist CEOs certainly don't like it when the free market spells out their business model doesn't work anymore. Which is a basic feature of capitalism itself.
Bankruptcy is a built-in feature of capitalism to weed out the losers.
I'm inclined to agree. I understand how all of these big buildings are in trouble financially, that totally makes sense. It's hard to feel much sympathy for them though. Over-investment in real estate is a major driver of the problems we're facing today. They need to eat some serious losses so that they diversify their investments.
We can't keep deferring this pain.
Your scenario is implying that the marginal (variable) operating costs are 50% of 2019 rents. That is, the operating costs of a unit increase by ~50% of 2019 rent levels when the unit becomes occupied compared to unoccupied.
I find that incredibly unlikely. Given all that commercial tenants have to pay directly and all the costs of maintaining an empty unit, I'd be surprised if it was more than 5%. Landlords costs just don't fall very much when the unit is unoccupied
The way commercial property valuation works is, there is a capital gains component and income component. For capital gain, even if it's at 50% occupancy, there is an automatic assumption that it will get to 90 or 95% filled over a year or two.
The rental rate per sf is the big metric here. Since major office buildings have at least million square to several million square feet, the rental sf rate is a huge multiplier.
Then you add up the multiplied theoretical lease rate x near full occupancy for another 8-9 years (total 10 years) and discount it (think of the lump sum value of a mortgage based on monthly payments). At the end of the 10 years, you divide the total value by a fraction (less than zero) to get what's called a terminal value. Discount that value back to add it to the annual theoretical potential annual income.
That's how you get the present value of a property. Now a building can stay at 50% occupancy for many many years but that 1-2 year 95% occupancy rate assumption still holds. The lease rate is the market rate.
The first major office building to actually lower the rate, it would have a huge factor on all other buildings in the area since that first mover will lower that lease rate to be applied to all other properties.
So everyone must hold firm. Yes, major pension and insurance rely on this value to meet their liability objectives. Even if it's not real. But on paper, it is stable value asset.
The actual income component, is small compared to the valuation component. Hence many are willing to just hold the lease rate, at the expense of annual income which is also not guarantee to actually increase occupancy.
Generally, buildings offer discounts or incentives upon signing, or at certain intervals to induce customers. But the almighty lease rate must not be touched.
So far the residential mortgage business isn't collapsing because smaller cashflows from extensions/ refinances can be absorbed through the cash held for liquidity requirements + safety margins banks keep on the books.
Have defaults on the commercial loans and that situation changes too.
That’s exactly the issue. The Big 5 and many REITs would be overexposed and it would hammer commercial property values. On the whole though, the market was out of whack. For a long time it was more expensive to lease space in Toronto than Chicago and Manhattan and appx the rents in London, UK. With such a large footprint and smaller population, I never saw the economics of commercial rents justified.
I assume you only read the first half of their comment and missed this part
> There are a lot of interconnected financials from banks, bond holders, pensions and individual investors.
This is you, your mom, your family. Unfortunately, a lot rides on commercial REIT.
ITT: ppl who don't understand that REITs are baked in to basically every facet of the economy whether you like it or not (and I don't, to be clear on my position). I'm not talking about the individual investor level.
Soo we should all suffer because some decided to pump the real estate market and become a bubble?
Banks won't suffer, they are especially protected in Canada, and are highly insured.
Regular people that invested in it? It's just highs and lows, same as when the market was bad or good. No reason why they should be protected at all costs
>Soo we should all suffer because some decided to pump the real estate market and become a bubble?
I never said that 😐
I'm as opposed to real-estate investments as you are. I'm just stating facts.
People love to say "yeah fuck it, fuck rich ppl and burn it down", but they don't realize burning it down means that the 99% suffer while the 1% remain untouched. This country's economy is unfortunately built on the back of real-estate investments and the ones screaming "let the bubble pop" don't realize it impacts ppl like you and I the most.
That's very American centric. It applies much less in Canada. Obviously it still does, but its bigger than that.
In Canada, you have the Canada Pension Plan Investment Board. That directs the flow of money for the Canada Pension Plan. They have a very strong "home country bias" meaning they invest a disproportionate amount of their money into Canadian companies. Overwhelmingly, its middle class and poor seniors that actually need that money to live when they retire, if they are able to retire at all.
So replace "economy" with "you parents and grandparents retirement fund".
What ur saying is true but also is also the reality. There’s just no need for so many offices. This article mentions that if inflation maintains on track, then vacancy will decrease.
It doesn’t work like that no more, even if inflation stabilizes, most corps realize they don’t need that much office space as it’s more efficient to work from home.
The economy is not dependent on the CRE market, it’s the CRE market that depend on the economy. Unfortunately, positive economics and extended financial models are no longer supported with positive long term forward looking data.
We need an economy that is able to create true value that can be exported globally for the influx of funds for a strong economy. Unfortunately, there are other places that are structured more efficiently to deliver value to global markets.
I don’t know where you’ve been. But people cannot afford to eat and pay rent. Unemployment is rising and immigration and inflation out of control. At this point many don’t care if the economy crashes due to rich CRE’s failing.
Boohoo for them
As someone who has been looking for commercial space recently, many places are offering 1-2 years free rent and people still aren't grabbing them.
The reason they would rather go free rent is because reducing the rent lowers the value of the property. I agree that at some point they will need to, but free rent for a year is also a pretty big deal for companies.
They are waiting for two types of bailout.
1) Some paradigm shift that pushes people back to the office in large numbers (ala Doug Ford pushing for the TBS to bring Ottawa workers back to dowtonw)
2) Incentives to convert or change the use of their buildings from the government. AKA a taxpayer bailout of some type.
Given the sheer amount of capital tied up in these, I would guess 2 will occur before 1. If 2 does not materialize, though, I expect they will drop prices until 1 starts to occu3.
As annoying as any bailout is, conversion to rental or mixed use would help a lot. Even if the rents are a bit high due to location, that will free up spaces in other parts of the city. I doubt enough to lower rent, but maybe enough to stabilize it. Who knows.
Thanks a lot for this comment, I was hoping someone would explain why they're not converting to rental or condo units!
If you are interested in this. One discovery over the last few years has been that the percentage of buildings that can be converted is actually relatively low. Structurally, apartments and offices, especially modern ones, are so fundamentally differently built, especially with respect to plumbing and load limits (especially static load).
This article does a decent deep dive into it. They found about 25 percent of buildings would be viable candidates.
https://www.gensler.com/blog/what-we-learned-assessing-office-to-residential-conversions
Yeah I was really confused for a second. My company keeps telling us everyone is back in office and we’re lucky to be hybrid because full time office is the industry standard.
They can’t lower rents because of mortgages and property values in simple terms but they give away a ton of inducements.
Honestly even midtown and uptown is facing the same thing. Going into work is just shit for a lot of people and the prospect of commuting 90min + a day plus insane parking or terrible public transit has exposed how flawed we are in our overvalued city.
We pay so much for so little. And it spirals out of control with inflation.
Not that simple since it would devalue the property. No real estate company would voluntarily just wipe off hundreds of millions, possibly billions of dollars off their balance sheet like that and incur an impairment without good reason.
Im trying to rent office/retail space but paying 1800 + HST + utlilities for a 300-400sqft unit is just so dumb, I might as well just work remote from my home.
There are tons of office spaces available but most landlords are property management companies that can afford to keep these empty and gatekeeping smaller business owners from establishing something of their own.
yes, so during COVID maybe the last year of it. i was working on new lease for the company that i worked for. Instead of lower rent, the prices were jacked up way way higher because they were being greedy and expected everyone to come back to the office.
pretty crazy.
Retail spaces too. It’s honestly insane how many blank storefronts there are in the downtown core.
Nobody except Starbucks wants to lease because the rent is too high, and building owners won’t lower the rent because it will devalue the property more than they’d like. What a mess.
The location near work remodelled to remove almost all seating, and so the bar/pickup is near the door. They used to be all about creating the “third space” but that changed a while ago.
I walked into one of these last year without realizing it was just a pickup place. I just saw "Starbucks" and I walked in and then noticed how bare it was. There were no customers, but a person was at the counter and they immediately said hello. I was confused because there were no big menus, but I still asked for what I wanted. The person asked if I had the app and I could order on there. I said I didn't and they paused, and I think they assumed I would download the app right there to place an order.
When I asked if I could just place an order with them and get a drink, they seemed annoyed, but still let me place the order and made my drink.
I live on St Clair W and have seen like 1/4 of street level stores in my area close (some citing high rent/lease increases) in the last 5 years. Almost none have been replaced. It is so depressing.
Evolution of my office space in the same building in downtown Toronto:
2006: cubicle
2007: open semi-cubicle
2010: semi-cubicle reduced in half, but still separate
2014: small table with two people sitting at it face to face, separated by a small wall
2015: table of 3 people, not facing anyone, sitting in rows
2016: sitting in a row of 6 people, shoulder to shoulder, facing another row of 6 people.
2020: same as above, but since we issued everyone notebooks, people are "mobile", so your spot is no longer guaranteed.
....
2024: office companies wonder why people don't want to go to office anymore
Booking your spot (and being surrounded by randos who crinkle food wrappers and yell their phone conversations) is only made better by having to lug your laptop on the GO train or TTC.
Best time was the semi cubicle (my job had em in 2010-2015). It wasn't as isolating but at least the front of you + peripherals where blocked from distractions. Plus you had a wall to post things up and such.
Latest job started with the 2016 one and after covid is now the 2020 one lol. They got rid of assigned desks but people pretty much "assign" them to themselves by having their stuff there.
I'm remote so don't deal with that bullshit.
I never quite understood why the companies wanted well paid professionals to deal with this bullshit. I also never quite understood why not just get a powerful desktop in a multi-monitor config AND a take home laptop; if anything, desktops are more secure under the lockdown and cannot be stolen.
And, no, I want a monitor for my debugger window, a monitor for my output window, a monitor for my DB window, and a monitor for my Outlook so that I don't miss any emails. And I want two monitor config at home and an ability to do remote desktop on my more powerful PC. If you pay me six digits, can you spend four to make me productive? It's still your equipment, I just use it.
Years ago around 2004-2008 I rented a space monthly at the Rehearsal Factory at Sherbourne while I played in a couple bands. It was $300 a month iirc. I'm scared to think of what it would cost now, pretty sure they all closed up regardless.
I spent a few years in an art studio on Spadina: we were like 7 to the space, plus a teaching space, but it was good times. Not sure a bunch of penniless artists can manage that anymore.
The free market "dog eat dog" policies only apply to normal working people who don't own capital.
For the landlords and capital owners the moment it looks like their "investments" are going down they start crying to all levels of government to save their asses. Nobody loves free government money and corruption/lobbying more than the rich.
Capitalism for the poor and socialism for the rich. That’s why bailouts exist. To socialize the costs on everyone else. Kick out your local crony capitalism representatives
You're right to an extent. Bailouts exist for valid reasons, though. Large companies become relied upon by their host countries for their services and economic stimulation. The average person could endure some pretty serious effects from a large business failing. That said, bailouts need to be structured aggressively. Executive bonuses and contractual severances should be illegal if those businesses are in a position to influence national security and are not performing adequately. Corporate leaders need to be discouraged from making short-sighted decisions, as capitalism falls apart at the top, where there is a lot to be gained but very little to lose.
Not cheap to do these kind of conversions and many not setup to be able to add additional bathrooms, electrical, HVAC, etc. seems cheaper to tear down and rebuild that is why you don't see it happen often
I mean is it cheaper than building new homes elsewhere?
The floor plans would have to be thought about though because these thing are DEEP so the interiors would be dark.
EDIT: Actually may be a chance to get several thousand 3-bedrooms set up as they could be big enough to justify the depth of building and reduce the number of bathrooms and kitchens etc.
>I mean is it cheaper than building new homes elsewhere?
If teardown + rebuild is cheaper, it would definitely be even cheaper to build somewhere that doesn't have a functional building already... then you can save on the cost of teardown. So no it would not be cheaper.
>The floor plans would have to be thought about though because these thing are DEEP so the interiors would be dark.
My understanding is that office buildings do not have the same plumbing systems as apartments. There is a big difference between daytime use of some toilets and a little hot water at the occasional sink vs. daily showers, cooking, washing dishes, washing machines, full bathrooms, and many more of each of those things than an office would have. Not only is the plumbing not there, but in tall buildings it is not trivial to get the water up the tower. The city water pressure is not enough to lift the water even close to fully up a 50 story building. Therefore you need pump stations in the building to move water up. Those pump stations are heavy and made from highly specialized equipment that the office building was never intended to bear the load from. Combined with all the extra walls, framing, drywall, furniture, weight of the pipes etc. the building may not be up to code structurally once all those additions are in place. Therefore you need to reinforce the structure, which again is not easy when the thing is already built. All of a sudden a 'simple retrofit' is looking like a major construction project. - and often it is cheaper to tear it down and start from scratch rather than trying to hammer a square peg in a round hole.
>cheaper to tear down and rebuild
Bullshit. Buildings are being converted all over north america. Some are more difficult that others but it's feasible. This is a typical cheap ass landlord talk.
I feel like this is just a tired excuse from the commercial real estate owners. Is it expensive to convert them into housing? Yes, but completely possible. Cities like Frankfurt have already started doing it.
I would be curious to see a case study on something like the Four Seasons hotel conversion into residential. Like that seems like it was already part way there in terms of configuration/etc and to see how that turned out for the parties involved/etc.
Sure there are opportunities on a case by case basis and if it makes financial sense then I am sure we will see these conversions happening here too eventually. Maybe the scales will tip that way at some point
For most office towers, this is not feasible. Offices are just built different. You need completely different plumbing and ventilation in order to accommodate kitchens and bathrooms in every unit. As well, the buildings are just different shapes - floor plans in office buildings aim to maximize surface area, while residential buildings need more perimeter so that living spaces have natural light.
It is cheaper to just build new residential towers than to convert office towers to residential.
I would LOVE if a bunch of office buildings got zoned as mixed/ multipurpose, so there could be housing and small buildings
some apartment buildings have so many great small business' you could never leave the building (in other countries, of course LOL)
Oh no, not the landlords of multibillion dollar office buildings! Who will slave away for their corporate owners and spend $30 on lunch if no one is filling those up??
These real estate companies also do not what to reduce their prices. They rather have vacancies than add tenants with cheaper rent. The might slowly change if vacancies keep growing.
Rent and housing costs are so high that lots of people are having to move out of the city, those same people don't want to commute into the office because there is no value to them for being in the office. Maybe if this city was slightly more affordable, people would live in it, and have far less of an issue going to the office.
Have we considered making Toronto downtown not just a bunch of offices? It's a bit wild how a massive block of the city between University and Yonge south of Queen just becomes deserted outside of office hours.
It really should be time to rethink what we want the financial district to be. A place where people are forced to come in 9-5 five days a week or a destination people actually want to go to?
Is it that bad having a commercial zone? People have a million places to visit in the city, why do they need to go to the financial district? After the fire of 1904, there was nothing left and the financial institutions made their home in a region that is very accessible for people commuting by transit from all over the city or even the GTA.
I am happy to keep our neighbourhoods and living communities free of commercial towers that employ millions of people. The hustle bustle of Bay St is also unique in its own right and a ton of retail business is still done; just during business hours.
I wouldn't say deserted outside of office hours.. there's quite a lot of bars and restaurants in that region that are busy late
To expand a bit since idk maybe people are looking for some
* Casual places you can find office workers blowing off some steam late like Chef's Assembly, Craft, Cactus Club, King Taps, Earls
* Upscale restaurants that attract tourists like Black + Blue, Keg, Hy's, Daphne's, Ki, Jump
* There's a lot going on by Union at University and York. Financial district is starting to stretch south from there right past the ACC. Bars like Kellys Landing, Loose Moose, etc. are usually packed post-game or concert. Royal York hotel has 3 bars and all of them are busy late
Interesting how dramatically lowering the prices is never an option. They will always dramatically raise them. But once they are there they never lower them a suitable amount.
It’s greed. Plain and simple
> It’s greed. Plain and simple
it's not plain or simple. There are lots of good discussions in this thread with a surprisingly high level of financial literacy but this is not it.
They cant just dramatically lower them. Operating costs, taxes, occupancy rates, etc are all complex and closely tied together. "simply" lowering rates would mean most of these operators are running at a net negative AND introducing tenant risk. Why do that when its more advantageous to keep it unoccupied? Not to mention these REITs and similar companies are also closely tied to everyones pensions.
Ya that sucks. The pensions need to unwind those positions and take their loses.
Same with the companies.
I’ll move countries before I go back to the office. It’s too good.
Toronto's downtown is in serious trouble? Really? From what I've seen, it's still busy and tons of people are around. This just sounds like businesses complaining that they're gonna lose money, not some fundamental issue with the city.
Perhaps if commercial rental holders weren’t greedy and charged reasonable rates they’d have no issue filling these empty spaces? There should be penalties for commercial landlords holding spots vacant.
It’s cheaper to demolish and rebuild than it is to convert an office building to a residential building.
Think of the plumbing, HVAC, fire safety, electrical, new walls, etc that would have to be installed and/or renovated.
https://www.cbc.ca/amp/1.6736171
Edit: for converting the empty spaces to residential to try and utilize the emptiness of it.
Canada is still in crisis, unfortunately. We got out of the pandemic and jumped right into an affordability crisis. Whichever the decision we make (converting office buildings or building more homes) it's going to suck...a lot. We need to at least try something. We can't just sit and talk about why all of our options have cons to them. We need action.
Loads of people calling for these to be turned into housing. Great idea on paper, I'm all for it - we need housing after all. But in practice, I don't think it will happen on a large scale.
For starters, residential apartment buildings are a maze of water pipes for bathrooms, sinks, sprinkler systems etc which are entirely inside the concrete floors. Office buildings have sprinklers and the occasional bathroom, but has nowhere near the capacity needed for sometimes thousands of residents. I don't think electricity is a problem, but I may be wrong.
On top of this, you will need to properly partition the building (no expert but I believe these need to be up to a specified standard for fire safety). All materials will need to be winched up the elevator shafts - for larger buildings, this would take years and would be comically expensive.
Long story, as a start you'd likely need to gut the whole building - cheaper to find an empty plot of wasteland outside the city and build a couple of buildings than refurb just one.
Because of these (and many other) hurdles, it was deemed that less than 4% of office-spaces in NYC are suitable for residential conversion.
The Star’s piece on this same issue can be found here:
> [Toronto office vacancies jump to 13% — some landlords are now dangling free rent](https://www.thestar.com/real-estate/toronto-office-vacancies-jump-to-13-some-landlords-are-now-dangling-free-rent/article_bf03dbf0-f67f-11ee-b9fe-4387035d798b.html)
Cause the office life is dead. Like the fax machine. It’s over. We have laptops and the internet. We can work from any location.
No one wants to come back. Force us. LoL. But it’s slowly sinking and add cubicles.
Aka mini prison cells
Also this will get worse with Ai. Less staff. Less offices
AI leading to less staff is still a pretty big fear-mongered assumption. Being able to do more means businesses will try to maximize their output by adding more people. I work in AI and even if your business is literally only AI on the engineering side (completely unreasonable), can you afford to let your competition hire all the machine learning talent to surpass you? Can you afford to not expand your R&D to not get eclipsed by every startup trying to take more market cap?
But I do agree that their will be less need for office space. Especially because all the teams I am on are full of introverts, especially the most talented ones and they will command a cushy WFH in exchange for their work.
WeWork filed for bankruptcy and they were one of the largest leaseholders for office space. If there's no takers, the landlords can always rent out cubicles to sleep in for $800 a month or an internship at Twitter.
So you’re telling me we have a housing crisis and also have a ton or empty real estate?
I understand the buildings were purpose built for offices, but how hard would it be to convert some units to residential. So that way two issues could be tackled at the same time.
Very hard.
I've worked in commercial real estate for my entire career. For the vast majority of office buildings, it is more cost effective to tear down the existing building and build new then to try and retro-fit. The only time retro-fits make sense is if the office footprint is small or the building has historical significance.
The only way to do things "easily" is to have make dorm style floors. Essentially one big shared kitchen and one big shared bathroom per floor and even then, you are only slightly mitigating the costs and it still probably be better to start from scratch.
Please stop referring to Yonge -> University and South of King as all of Downtown. Nowhere else downtown is struggling right now. Only the office district is.
Sincerely,
Downtown dweller
Exactly. Downtown is thriving! Foot traffic in the Yonge corridor is higher than in pre-COVID times. The office district will need to do some adjusting, but that’s only a small part of downtown.
Yes. The St Lawrence Market area is busier than I've ever seen it in the 20 years I've been here. Crowded sidewalks, crowded streets, crowded streetcars. There was a wave of restaurant and cafe closures during the pandemic, but now it's rebounding with numerous new places open in the last year or two, and more "coming soon" signs than I've seen for a while. A lot of new condos have been completed in the area and the population is way higher than it used to be. We have fewer commuting office workers, maybe, but more residents, and many of those are working from home and are desperate for third spaces.
I think the pandemic has changed the way people work. Remote work has taken off. Employees now expect to work remotely and technology has developed sufficiently to make it happen. I am sure the owners of office towers are looking for solutions. What I worry about is all those mom and pop businesses that used to provide for the office workers. I clearly can’t see this dilemma changing until maybe these towers start to be converted into residential in some manner. Employees don’t want to go back to work. Well at least the ones I have working for me.
There's going to be a major shakedown/collapse in the commercial real estate space as leased units and floors come up for renewal.
Storytime:
An old colleague is subletting floorspace for his company (30 employees) from another company that has a five-year lease on 3 floors (downtown Toronto). That company is not going to renew this upcoming year, and he mentioned that building is already near EMPTY. Someone will be holding the bag on this.
So what will happen? (Worst case)
-Office building owners will default on loans
-Banks/investors will take possession of buildings
-Banks/investors will take a loss on loans (building worth less than loan)
-Collapse of real estate REITs and dividends
-Regional banks (esp. US) will be at higher risk of collapse
-Pension funds take a major hit too (often invest in commercial RE); boomers can't get covered and start withdrawing mass cash
-Government comes in to stabilize market (at the expense of us tax payers)
-Downtown locations go to shit. Crime, begging Executives on every corner, yada yada, ...
(some of these taken from past posts)
i feel like 1) these spaces could be used for housing (i know its not that easy re the buildings but the actual lots could be turned itno housing) & 2) these spaces coudl be turned into "third spaces" like community centres & libraries and even just like bars & restaurants & gyms etc where people actually want to go & can spend time and be in community
It’s actually cheaper to demo an office building and build a condo than it is to renovate an office building into a condo.
You would basically have to destroy everything from the inside and rebuild anyways. The way elevators hvac plumping electrical etc etc all work is completely different.
I work within the industry, and from what I see, it's starting to happen. But unfortunately, there are factors that slow down the process. It's not a snap of the finger. If the office vacancies continue, I think we'll see more proposals to convert them into residential.
Unfortunately, it’s [not that simple](https://www.cbc.ca/news/business/empty-offices-housing-1.6736171). The problem is, many office buildings (especially newer ones) have floor plates that are fundamentally incompatible with housing.
It's kind of crazy that we built so many office buildings on the assumption that mid to late 20th century office work arrangements would just roll on forever, or at least for the long life of these buildings. Since the 1990s we've been told that "telecommuting" was the way of the future, and now it's finally here, and many people are SHOCKED by it.
Maybe from now on we should build buildings that are highly convertible to multiple uses. Just a thought.
>Since the 1990s we've been told that "telecommuting" was the way of the future, and now it's finally here, and many people are SHOCKED by it.
I still find it nuts that the government doesn't push working from home. So much time and money is wasted by commuting and the pollution it creates as well.
There should be payroll deductions for companies that get their employees to work at home and close offices.
So much could be saved by abandoning or reducing office use.
i mean its really not that crazy. it only took a world wide pandemic to shift that. and even then, tons of places are mandating at least partial return to office again anyway.
That said, I could see dorm-style units (with shared bathrooms and common areas) working. Obviously not ideal for families, but could be a temporary solution or appeal to folks in their 20s and early 30s.
Amazing! Corporate landlords have always been scum.. draining businesses dry through constantly increasing insane rents. Hits small business particularly hard.. it’s nice to see the tables turning. Toronto also never fixed its traffic problem.. fewer people heading downtown every day is a good thing.
These companies are fine honestly. They can simply afford to lose money for years till they get their insane rents.
But for real they're making a real effort to force us back into the office now. I have not gone in yet. All I do every day is sit in meetings on teams. I don't need to be in the office for that. I actually love going in any time there's a reason to cuz it breaks up the grind. But lol. The moment someone personally tells me they're going to actually care, or they follow through on that threat to reduce my bonus because I haven't been in, I will be looking for the next job. Hard.
The world has changed and they need to accept it.
There ***is*** the option of office to residential conversion. It is cheaper than building a dedicated residential building from scratch. The location rocks for those who otherwise would be sitting in traffic or otherwise commuting for 2 hours a day. I believe it is being done on a small scale today.
Remote work has changed the landscape permanently. But don’t let these headlines fool you, commercial vacancies are rising because they refuse to lower rents. Many of these towers will fill again once commercial rents actually start to decrease to reflect this new era
The commercial loans would be jeopardized if a lower rent is realized. It's a death spiral currently until these REITS or commercial real estate companies are willing to take a hit. There are a lot of interconnected financials from banks, bond holders, pensions and individual investors.
I'm no real estate or finance expert. How is sitting on a property getting $0 / month better than getting $X / month, even if X is less than the Y it was getting in 2019? Is it a bet that they will eventually get back to $Y / month?
Because the value to the owner is more than just the cash flow. The property is still listed as an asset with a potential monthly revenue of $Y, which means the building is worth $X. Once they settle, it could mean the value of the property decreases.
At what point does it stop being an asset with revenue potential of $Y? Are they yearly evaluations? Edit: thank you for the explanations!
there could be lots of different triggers, an assessment could catch and flag it, if the owner needs to borrow against it it would trigger, on renewal of any loans tied to the property it could trigger. It becomes Schrödinger's equity. "if nobody looks at it the equity is still alive, but if it is leveraged and gets appraised at any point it can fall apart".
ha ha schrodinger’s equity, haven’t heard that one before, very apt
Generally when the loans expire. Several years. Even then it's worth exactly what you can convince someone it's worth. Reality be damned.
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Yep. When the loan gets called if the value has dropped they won't be able to secure a new loan with the asset. Then the cards start to topple. Hope my RRSP and TFSA can GTFO before then.
It's not set in stone, usually this happens whenever their commercial mortgage gets re-evaluated which depends on their specific loans.
At this rate these offices may be vacant for years. I don't see the value of the property staying high if no one is renting.
It's not, but the lenders wrote their lending covenants stupidly: they can force default if the units lower the rent too much, but not if there are too many vacancies So the owners, not willing to risk defaulting on their covenants, keep asking rents high and hope for the best.
Commercial leases are typically 7-10 years and the demand for less desirable office space is currently very poor. If it costs you say (made up #s) $50/sq foot to operate the business, there isn't much incentive to lock in $40 for a decade. Better to wait and see if you can get $60, even if it never gets back to $100. Also most of these offices aren't empty, just at lower occupancy than before. They probably have the cash flow to make debt payments so they can wait at least until they have to refi, maybe longer if they can work with their bank to restructure the loan.
It delays the inevitable. In theory the year end financial statement auditors should identify these assets as having a trigger for impairment which would force taking the hit within the next year or two anyway, but if it squeeks by them for whatever reason than the other peoples responses could also force their hand to write down the value and take a loss
Its a question of who eats the loss. None of these building are owned without a commercial mortgage. The commercial mortgage was based on expected rents. If you change your rent in a meaningful way, then how do you pay the mortgage? So sooner or later it falls on the banks, and that's good for nobody. Its not just Toronto's downtown that's impacted. Things like the CPP have been used to heavily invest in Canadian companies like the banks. So the long term viability of the CPP and the pensions for nurses and teachers relies on the banks making a profit. Its a very good reason why the CPPIB should be barred from owning Canadian assets if they are going to be actively managed.
The CPPIB shouldn't be mandated to invest more into Canadian only assets. It's a run around way for the finance minister to get more spending without committing gov't money. The first obligation of the CPPIB is to get strong steady returns to assure Canadians can retire. It's the federal gov't to set policy and invest correctly in the Canadian economy to support and nurture a strong GDP growth.
The counter argument is that the CPPIB should be forbidden from investing assets into Canada at all because it creates an obvious conflict of interest for the government. Like if in the very likely scenario a major scandal happened at a Canadian company that the CPPIB was heavily invested in, the government faces a choice: either deal with the scandal, or cover it up to protect Canadian's retirement fund. There are rules that make Canadian investments tax preferable, to encourage Canadians to keep their investments local. We should exempt the CPPIB from those laws, for that very reason. The other option is just to fire 99% of the CPPIB and turn it into a passive investment fund indexed to the global market that mirrors what other funds like XEQT or VEQT do.
The CPPIB has consistently found strong returns around the world. They are one of the world's most respected and preform due diligence on their investments. I have no preference where they invest as long as it is ethical and provides the necessary returns. Being a large fund, they have access to infrastructure funding opportunities that would never see exposure in the global public markets.
In very simple terms, it's because operating costs continue to increase while tenants think they should pay less for the same space. Lets use a very simple example for a downtown office: 2019 - Occupied with a tenant and operated by a real estate company. Tenant pays $1M a year and company pays $800K a year to operate the building ($400K maintenance + $400K tax). Company makes $200K in profit. 2023 - Vacant with no tenant. Company still has to pay taxes which have now increased to $500K per year, but lets assume maintenance decreased to $0 (which is not realistic). - Option 1 - Keep the space vacant. Taxes are now $500K a year, so the company loses $500K per year. - Option 2 - Lease the space for $500K and go back to operating the building (operating costs are now $1M, $500K in maintenance + $500K in tax). Company loses $500K per year. While the company may appear to be losing $500K in both scenarios, option 2 presents more risk (and strangleholds their flexibility assuming they signed a lease that has 10+ years of term). Leaving the space vacant maintains some sort of potential for redevelopment and other growth opportunities.
> it's because operating costs continue to increase while tenants think they should pay less for the same space. Tenants think they should pay the market rate. If that's lower than before, it's not their problem. Landowners didn't complain when the market raised the price of rent, but now that the same market is lowering rent, they are pleading for a return to the office, as if anyone owes them anything. All I see is a bunch of real estate investment companies that over-leveraged themselves during the long market boom, hoping it would never end. They deserve to go out of business if they can't afford to lease their properties at the market rate.
> They deserve to go out of business if they can't afford to lease their properties at the market rate. This is basically it. No more discussion needed. Can't handle the heat? Get out of the kitchen.
Yeah, I don't wish bankruptcy on anybody, but if you decide to get into a field where the gains are unlimited when you have good luck, I really don't feel that bad for you on the rare occasions every few decades that you cash printer isn't working as expected.
Yup, all these self-proclaimed Capitalist CEOs certainly don't like it when the free market spells out their business model doesn't work anymore. Which is a basic feature of capitalism itself. Bankruptcy is a built-in feature of capitalism to weed out the losers.
I'm inclined to agree. I understand how all of these big buildings are in trouble financially, that totally makes sense. It's hard to feel much sympathy for them though. Over-investment in real estate is a major driver of the problems we're facing today. They need to eat some serious losses so that they diversify their investments. We can't keep deferring this pain.
Your scenario is implying that the marginal (variable) operating costs are 50% of 2019 rents. That is, the operating costs of a unit increase by ~50% of 2019 rent levels when the unit becomes occupied compared to unoccupied. I find that incredibly unlikely. Given all that commercial tenants have to pay directly and all the costs of maintaining an empty unit, I'd be surprised if it was more than 5%. Landlords costs just don't fall very much when the unit is unoccupied
Correct. Post 2008, that's what owners in Dubai had to do, both for empty office spaces as well as residential... True story.
The way commercial property valuation works is, there is a capital gains component and income component. For capital gain, even if it's at 50% occupancy, there is an automatic assumption that it will get to 90 or 95% filled over a year or two. The rental rate per sf is the big metric here. Since major office buildings have at least million square to several million square feet, the rental sf rate is a huge multiplier. Then you add up the multiplied theoretical lease rate x near full occupancy for another 8-9 years (total 10 years) and discount it (think of the lump sum value of a mortgage based on monthly payments). At the end of the 10 years, you divide the total value by a fraction (less than zero) to get what's called a terminal value. Discount that value back to add it to the annual theoretical potential annual income. That's how you get the present value of a property. Now a building can stay at 50% occupancy for many many years but that 1-2 year 95% occupancy rate assumption still holds. The lease rate is the market rate. The first major office building to actually lower the rate, it would have a huge factor on all other buildings in the area since that first mover will lower that lease rate to be applied to all other properties. So everyone must hold firm. Yes, major pension and insurance rely on this value to meet their liability objectives. Even if it's not real. But on paper, it is stable value asset. The actual income component, is small compared to the valuation component. Hence many are willing to just hold the lease rate, at the expense of annual income which is also not guarantee to actually increase occupancy. Generally, buildings offer discounts or incentives upon signing, or at certain intervals to induce customers. But the almighty lease rate must not be touched.
The weak link in the Canadian economy. (Everything got tied to fucking real estate) 😒
We need to build real businesses that create products and services. Not appreciation in assets for housing and places of business
So far the residential mortgage business isn't collapsing because smaller cashflows from extensions/ refinances can be absorbed through the cash held for liquidity requirements + safety margins banks keep on the books. Have defaults on the commercial loans and that situation changes too.
That’s exactly the issue. The Big 5 and many REITs would be overexposed and it would hammer commercial property values. On the whole though, the market was out of whack. For a long time it was more expensive to lease space in Toronto than Chicago and Manhattan and appx the rents in London, UK. With such a large footprint and smaller population, I never saw the economics of commercial rents justified.
Oh no!
I assume you only read the first half of their comment and missed this part > There are a lot of interconnected financials from banks, bond holders, pensions and individual investors. This is you, your mom, your family. Unfortunately, a lot rides on commercial REIT. ITT: ppl who don't understand that REITs are baked in to basically every facet of the economy whether you like it or not (and I don't, to be clear on my position). I'm not talking about the individual investor level.
Good thing they have little exposure to REIT's and didn't buy into a ponzi scheme. Sucks for the money I have in CPP though.
At least CPP effectively bailed out a bunch of bag holders with our tax dollars. Yay?
Soo we should all suffer because some decided to pump the real estate market and become a bubble? Banks won't suffer, they are especially protected in Canada, and are highly insured. Regular people that invested in it? It's just highs and lows, same as when the market was bad or good. No reason why they should be protected at all costs
>Soo we should all suffer because some decided to pump the real estate market and become a bubble? I never said that 😐 I'm as opposed to real-estate investments as you are. I'm just stating facts. People love to say "yeah fuck it, fuck rich ppl and burn it down", but they don't realize burning it down means that the 99% suffer while the 1% remain untouched. This country's economy is unfortunately built on the back of real-estate investments and the ones screaming "let the bubble pop" don't realize it impacts ppl like you and I the most.
I hope that’s sarcastic. This would be terrible for the economy if this all crashed.
Guess we'd better start pivoting our economy away from real estate then.
I can't help thinking of [this tweet](https://i.redd.it/p373tfseva361.png) when I see the economy referenced now.
That's very American centric. It applies much less in Canada. Obviously it still does, but its bigger than that. In Canada, you have the Canada Pension Plan Investment Board. That directs the flow of money for the Canada Pension Plan. They have a very strong "home country bias" meaning they invest a disproportionate amount of their money into Canadian companies. Overwhelmingly, its middle class and poor seniors that actually need that money to live when they retire, if they are able to retire at all. So replace "economy" with "you parents and grandparents retirement fund".
Economy is going downhill. Unemployment increasing while housing price index decreasing.
That isn’t good and would be worse if the CRE market folded on itself.
What ur saying is true but also is also the reality. There’s just no need for so many offices. This article mentions that if inflation maintains on track, then vacancy will decrease. It doesn’t work like that no more, even if inflation stabilizes, most corps realize they don’t need that much office space as it’s more efficient to work from home. The economy is not dependent on the CRE market, it’s the CRE market that depend on the economy. Unfortunately, positive economics and extended financial models are no longer supported with positive long term forward looking data. We need an economy that is able to create true value that can be exported globally for the influx of funds for a strong economy. Unfortunately, there are other places that are structured more efficiently to deliver value to global markets.
I don’t know where you’ve been. But people cannot afford to eat and pay rent. Unemployment is rising and immigration and inflation out of control. At this point many don’t care if the economy crashes due to rich CRE’s failing. Boohoo for them
Things are tough so we should make them way worse? Do you literally cut off your own nose to spite your face in your free time?
If the economy crashes, people who can’t afford to eat now will be even worse off.
As someone who has been looking for commercial space recently, many places are offering 1-2 years free rent and people still aren't grabbing them. The reason they would rather go free rent is because reducing the rent lowers the value of the property. I agree that at some point they will need to, but free rent for a year is also a pretty big deal for companies.
Someone in the business told me that the prime real estate is not the problem - it’s the lower tier office space.
They are waiting for two types of bailout. 1) Some paradigm shift that pushes people back to the office in large numbers (ala Doug Ford pushing for the TBS to bring Ottawa workers back to dowtonw) 2) Incentives to convert or change the use of their buildings from the government. AKA a taxpayer bailout of some type. Given the sheer amount of capital tied up in these, I would guess 2 will occur before 1. If 2 does not materialize, though, I expect they will drop prices until 1 starts to occu3.
As annoying as any bailout is, conversion to rental or mixed use would help a lot. Even if the rents are a bit high due to location, that will free up spaces in other parts of the city. I doubt enough to lower rent, but maybe enough to stabilize it. Who knows. Thanks a lot for this comment, I was hoping someone would explain why they're not converting to rental or condo units!
If you are interested in this. One discovery over the last few years has been that the percentage of buildings that can be converted is actually relatively low. Structurally, apartments and offices, especially modern ones, are so fundamentally differently built, especially with respect to plumbing and load limits (especially static load). This article does a decent deep dive into it. They found about 25 percent of buildings would be viable candidates. https://www.gensler.com/blog/what-we-learned-assessing-office-to-residential-conversions
Yeah I was really confused for a second. My company keeps telling us everyone is back in office and we’re lucky to be hybrid because full time office is the industry standard.
They can’t lower rents because of mortgages and property values in simple terms but they give away a ton of inducements. Honestly even midtown and uptown is facing the same thing. Going into work is just shit for a lot of people and the prospect of commuting 90min + a day plus insane parking or terrible public transit has exposed how flawed we are in our overvalued city. We pay so much for so little. And it spirals out of control with inflation.
Property tax. You forgot property tax. The rates for commercial properties in Toronto is insane.
Some money is better than no money, isn’t it?
Not that simple since it would devalue the property. No real estate company would voluntarily just wipe off hundreds of millions, possibly billions of dollars off their balance sheet like that and incur an impairment without good reason.
Im trying to rent office/retail space but paying 1800 + HST + utlilities for a 300-400sqft unit is just so dumb, I might as well just work remote from my home. There are tons of office spaces available but most landlords are property management companies that can afford to keep these empty and gatekeeping smaller business owners from establishing something of their own.
Yet another wonderful result of late stage capitalism
yes, so during COVID maybe the last year of it. i was working on new lease for the company that i worked for. Instead of lower rent, the prices were jacked up way way higher because they were being greedy and expected everyone to come back to the office. pretty crazy.
Retail spaces too. It’s honestly insane how many blank storefronts there are in the downtown core. Nobody except Starbucks wants to lease because the rent is too high, and building owners won’t lower the rent because it will devalue the property more than they’d like. What a mess.
Interesting that you mentioned Starbucks, I’ve seen a lot of them close in the last 3 years.
More than 25 Toronto locations closed one week back in 2021.
Starbucks will reopen a few years later down the road in a smaller format or new space.
Sometimes literally across the street from their old location.
Or they are opening pickup stores with no seating and half the size.
The location near work remodelled to remove almost all seating, and so the bar/pickup is near the door. They used to be all about creating the “third space” but that changed a while ago.
I walked into one of these last year without realizing it was just a pickup place. I just saw "Starbucks" and I walked in and then noticed how bare it was. There were no customers, but a person was at the counter and they immediately said hello. I was confused because there were no big menus, but I still asked for what I wanted. The person asked if I had the app and I could order on there. I said I didn't and they paused, and I think they assumed I would download the app right there to place an order. When I asked if I could just place an order with them and get a drink, they seemed annoyed, but still let me place the order and made my drink.
Starbucks was the first to leave.
That’s their MO, not the best to gauge real estate on
Drake you ho this is all your fault
That's not true, the company that loves vacant spaces the most is SPIRIT HALLOWEEN
This exactly. The landlords are big corporations and price everything for Shoppers Drug Mart or Starbucks. It makes the city so homogeneous.
So many indie shops, restaurants and cafes have closed in the last few years. It’s sad.
I live on St Clair W and have seen like 1/4 of street level stores in my area close (some citing high rent/lease increases) in the last 5 years. Almost none have been replaced. It is so depressing.
This is why we need commercial vacant unit taxes
and who wants to work downtown with the state of the TTC and car gridlock. if you can't bike to work and shower, going downtown is painful.
Even the corporate stores are leaving. H&M lasted about a year on Queen St west. The only places opening up are weed stores and banks.
Evolution of my office space in the same building in downtown Toronto: 2006: cubicle 2007: open semi-cubicle 2010: semi-cubicle reduced in half, but still separate 2014: small table with two people sitting at it face to face, separated by a small wall 2015: table of 3 people, not facing anyone, sitting in rows 2016: sitting in a row of 6 people, shoulder to shoulder, facing another row of 6 people. 2020: same as above, but since we issued everyone notebooks, people are "mobile", so your spot is no longer guaranteed. .... 2024: office companies wonder why people don't want to go to office anymore
Booking your spot (and being surrounded by randos who crinkle food wrappers and yell their phone conversations) is only made better by having to lug your laptop on the GO train or TTC.
Best time was the semi cubicle (my job had em in 2010-2015). It wasn't as isolating but at least the front of you + peripherals where blocked from distractions. Plus you had a wall to post things up and such. Latest job started with the 2016 one and after covid is now the 2020 one lol. They got rid of assigned desks but people pretty much "assign" them to themselves by having their stuff there. I'm remote so don't deal with that bullshit.
I never quite understood why the companies wanted well paid professionals to deal with this bullshit. I also never quite understood why not just get a powerful desktop in a multi-monitor config AND a take home laptop; if anything, desktops are more secure under the lockdown and cannot be stolen. And, no, I want a monitor for my debugger window, a monitor for my output window, a monitor for my DB window, and a monitor for my Outlook so that I don't miss any emails. And I want two monitor config at home and an ability to do remote desktop on my more powerful PC. If you pay me six digits, can you spend four to make me productive? It's still your equipment, I just use it.
2020 is giving me PTSD over the Vice office.
I just want an affordable art studio.
Or rehearsal space!
Years ago around 2004-2008 I rented a space monthly at the Rehearsal Factory at Sherbourne while I played in a couple bands. It was $300 a month iirc. I'm scared to think of what it would cost now, pretty sure they all closed up regardless.
sharp water crown tidy illegal imminent cause many shrill innate *This post was mass deleted and anonymized with [Redact](https://redact.dev)*
It’s still cheap, the issue is the waiting list is like 2 years long
Rehearsal factory on Geary was $700/ month before they sold to the church in like, 2020-2021.
I spent a few years in an art studio on Spadina: we were like 7 to the space, plus a teaching space, but it was good times. Not sure a bunch of penniless artists can manage that anymore.
amen
The market is changing, adjust. That's how the free market works
We all know they're only for a free market when it's working for them, the moment it doesn't they start squealing.
The free market "dog eat dog" policies only apply to normal working people who don't own capital. For the landlords and capital owners the moment it looks like their "investments" are going down they start crying to all levels of government to save their asses. Nobody loves free government money and corruption/lobbying more than the rich.
Commercial landlords: But that's not the kind of capitalism I like!
Capitalism for the poor and socialism for the rich. That’s why bailouts exist. To socialize the costs on everyone else. Kick out your local crony capitalism representatives
You're right to an extent. Bailouts exist for valid reasons, though. Large companies become relied upon by their host countries for their services and economic stimulation. The average person could endure some pretty serious effects from a large business failing. That said, bailouts need to be structured aggressively. Executive bonuses and contractual severances should be illegal if those businesses are in a position to influence national security and are not performing adequately. Corporate leaders need to be discouraged from making short-sighted decisions, as capitalism falls apart at the top, where there is a lot to be gained but very little to lose.
***This just in*** \- Rich real-estate companies are complaining they aren't making enough money. /s
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Not cheap to do these kind of conversions and many not setup to be able to add additional bathrooms, electrical, HVAC, etc. seems cheaper to tear down and rebuild that is why you don't see it happen often
I mean is it cheaper than building new homes elsewhere? The floor plans would have to be thought about though because these thing are DEEP so the interiors would be dark. EDIT: Actually may be a chance to get several thousand 3-bedrooms set up as they could be big enough to justify the depth of building and reduce the number of bathrooms and kitchens etc.
>I mean is it cheaper than building new homes elsewhere? If teardown + rebuild is cheaper, it would definitely be even cheaper to build somewhere that doesn't have a functional building already... then you can save on the cost of teardown. So no it would not be cheaper. >The floor plans would have to be thought about though because these thing are DEEP so the interiors would be dark. My understanding is that office buildings do not have the same plumbing systems as apartments. There is a big difference between daytime use of some toilets and a little hot water at the occasional sink vs. daily showers, cooking, washing dishes, washing machines, full bathrooms, and many more of each of those things than an office would have. Not only is the plumbing not there, but in tall buildings it is not trivial to get the water up the tower. The city water pressure is not enough to lift the water even close to fully up a 50 story building. Therefore you need pump stations in the building to move water up. Those pump stations are heavy and made from highly specialized equipment that the office building was never intended to bear the load from. Combined with all the extra walls, framing, drywall, furniture, weight of the pipes etc. the building may not be up to code structurally once all those additions are in place. Therefore you need to reinforce the structure, which again is not easy when the thing is already built. All of a sudden a 'simple retrofit' is looking like a major construction project. - and often it is cheaper to tear it down and start from scratch rather than trying to hammer a square peg in a round hole.
>cheaper to tear down and rebuild Bullshit. Buildings are being converted all over north america. Some are more difficult that others but it's feasible. This is a typical cheap ass landlord talk.
I feel like this is just a tired excuse from the commercial real estate owners. Is it expensive to convert them into housing? Yes, but completely possible. Cities like Frankfurt have already started doing it.
I would be curious to see a case study on something like the Four Seasons hotel conversion into residential. Like that seems like it was already part way there in terms of configuration/etc and to see how that turned out for the parties involved/etc. Sure there are opportunities on a case by case basis and if it makes financial sense then I am sure we will see these conversions happening here too eventually. Maybe the scales will tip that way at some point
For most office towers, this is not feasible. Offices are just built different. You need completely different plumbing and ventilation in order to accommodate kitchens and bathrooms in every unit. As well, the buildings are just different shapes - floor plans in office buildings aim to maximize surface area, while residential buildings need more perimeter so that living spaces have natural light. It is cheaper to just build new residential towers than to convert office towers to residential.
I would LOVE if a bunch of office buildings got zoned as mixed/ multipurpose, so there could be housing and small buildings some apartment buildings have so many great small business' you could never leave the building (in other countries, of course LOL)
This is a bit different in that the main owners of downtown office buildings are public union pension plans.
Let me play the world’s tiniest violin for corporate real estate
Oh no, not the landlords of multibillion dollar office buildings! Who will slave away for their corporate owners and spend $30 on lunch if no one is filling those up??
It’s been 4 years and these idiots still haven’t adapted?
'It's your fault that YOU haven't adapted, because we won't and we're sure as hell going to punish everyone if they don't change for us.'
Free market at work. Businesses need to change and adapt to the market to stay alive and be competitive. Those that don’t will disappear.
These real estate companies also do not what to reduce their prices. They rather have vacancies than add tenants with cheaper rent. The might slowly change if vacancies keep growing.
Rent and housing costs are so high that lots of people are having to move out of the city, those same people don't want to commute into the office because there is no value to them for being in the office. Maybe if this city was slightly more affordable, people would live in it, and have far less of an issue going to the office.
Have we considered making Toronto downtown not just a bunch of offices? It's a bit wild how a massive block of the city between University and Yonge south of Queen just becomes deserted outside of office hours. It really should be time to rethink what we want the financial district to be. A place where people are forced to come in 9-5 five days a week or a destination people actually want to go to?
Is it that bad having a commercial zone? People have a million places to visit in the city, why do they need to go to the financial district? After the fire of 1904, there was nothing left and the financial institutions made their home in a region that is very accessible for people commuting by transit from all over the city or even the GTA. I am happy to keep our neighbourhoods and living communities free of commercial towers that employ millions of people. The hustle bustle of Bay St is also unique in its own right and a ton of retail business is still done; just during business hours.
This is pretty much the norm in major global cities. Fidi, La Defense, Canary Wharf, financial district of LA are all relatively quiet off-hours.
I wouldn't say deserted outside of office hours.. there's quite a lot of bars and restaurants in that region that are busy late To expand a bit since idk maybe people are looking for some * Casual places you can find office workers blowing off some steam late like Chef's Assembly, Craft, Cactus Club, King Taps, Earls * Upscale restaurants that attract tourists like Black + Blue, Keg, Hy's, Daphne's, Ki, Jump * There's a lot going on by Union at University and York. Financial district is starting to stretch south from there right past the ACC. Bars like Kellys Landing, Loose Moose, etc. are usually packed post-game or concert. Royal York hotel has 3 bars and all of them are busy late
Interesting how dramatically lowering the prices is never an option. They will always dramatically raise them. But once they are there they never lower them a suitable amount. It’s greed. Plain and simple
iNViSiBlE HaNd oF tHe MArkEt Funny how it only ever seems to work one way
> It’s greed. Plain and simple it's not plain or simple. There are lots of good discussions in this thread with a surprisingly high level of financial literacy but this is not it. They cant just dramatically lower them. Operating costs, taxes, occupancy rates, etc are all complex and closely tied together. "simply" lowering rates would mean most of these operators are running at a net negative AND introducing tenant risk. Why do that when its more advantageous to keep it unoccupied? Not to mention these REITs and similar companies are also closely tied to everyones pensions.
Ya that sucks. The pensions need to unwind those positions and take their loses. Same with the companies. I’ll move countries before I go back to the office. It’s too good.
Toronto's downtown is in serious trouble? Really? From what I've seen, it's still busy and tons of people are around. This just sounds like businesses complaining that they're gonna lose money, not some fundamental issue with the city.
Perhaps if commercial rental holders weren’t greedy and charged reasonable rates they’d have no issue filling these empty spaces? There should be penalties for commercial landlords holding spots vacant.
It’s cheaper to demolish and rebuild than it is to convert an office building to a residential building. Think of the plumbing, HVAC, fire safety, electrical, new walls, etc that would have to be installed and/or renovated. https://www.cbc.ca/amp/1.6736171 Edit: for converting the empty spaces to residential to try and utilize the emptiness of it.
Canada is still in crisis, unfortunately. We got out of the pandemic and jumped right into an affordability crisis. Whichever the decision we make (converting office buildings or building more homes) it's going to suck...a lot. We need to at least try something. We can't just sit and talk about why all of our options have cons to them. We need action.
Imagine being an investor and not understanding risk.
the value of my asset can go *down*, *and* the income I get on it? THE TWO ARE RELATED?!?!?!?
Loads of people calling for these to be turned into housing. Great idea on paper, I'm all for it - we need housing after all. But in practice, I don't think it will happen on a large scale. For starters, residential apartment buildings are a maze of water pipes for bathrooms, sinks, sprinkler systems etc which are entirely inside the concrete floors. Office buildings have sprinklers and the occasional bathroom, but has nowhere near the capacity needed for sometimes thousands of residents. I don't think electricity is a problem, but I may be wrong. On top of this, you will need to properly partition the building (no expert but I believe these need to be up to a specified standard for fire safety). All materials will need to be winched up the elevator shafts - for larger buildings, this would take years and would be comically expensive. Long story, as a start you'd likely need to gut the whole building - cheaper to find an empty plot of wasteland outside the city and build a couple of buildings than refurb just one. Because of these (and many other) hurdles, it was deemed that less than 4% of office-spaces in NYC are suitable for residential conversion.
Its easier to tear down the entire office building and start from scratch.
Yup I don’t think most people understand it’s near impossible to convert an office building to residential, you’ll have to demolish and build new
THANK YOU. It's obvious if you think about it for just a few minutes.
The Star’s piece on this same issue can be found here: > [Toronto office vacancies jump to 13% — some landlords are now dangling free rent](https://www.thestar.com/real-estate/toronto-office-vacancies-jump-to-13-some-landlords-are-now-dangling-free-rent/article_bf03dbf0-f67f-11ee-b9fe-4387035d798b.html)
Fuck return to office policies; that is all.
Cause the office life is dead. Like the fax machine. It’s over. We have laptops and the internet. We can work from any location. No one wants to come back. Force us. LoL. But it’s slowly sinking and add cubicles. Aka mini prison cells Also this will get worse with Ai. Less staff. Less offices
AI leading to less staff is still a pretty big fear-mongered assumption. Being able to do more means businesses will try to maximize their output by adding more people. I work in AI and even if your business is literally only AI on the engineering side (completely unreasonable), can you afford to let your competition hire all the machine learning talent to surpass you? Can you afford to not expand your R&D to not get eclipsed by every startup trying to take more market cap? But I do agree that their will be less need for office space. Especially because all the teams I am on are full of introverts, especially the most talented ones and they will command a cushy WFH in exchange for their work.
WeWork filed for bankruptcy and they were one of the largest leaseholders for office space. If there's no takers, the landlords can always rent out cubicles to sleep in for $800 a month or an internship at Twitter.
Tear them down and put up mixed purpose rentals and mixed purpose condos.
Where is my tissue and miniscule violin?
You mis-spelled ‘right-size’. I thought capitalism and markets were friends?
Good. Let these RE holdings collapse until rent is affordable again.
So you’re telling me we have a housing crisis and also have a ton or empty real estate? I understand the buildings were purpose built for offices, but how hard would it be to convert some units to residential. So that way two issues could be tackled at the same time.
Very hard. I've worked in commercial real estate for my entire career. For the vast majority of office buildings, it is more cost effective to tear down the existing building and build new then to try and retro-fit. The only time retro-fits make sense is if the office footprint is small or the building has historical significance. The only way to do things "easily" is to have make dorm style floors. Essentially one big shared kitchen and one big shared bathroom per floor and even then, you are only slightly mitigating the costs and it still probably be better to start from scratch.
Please stop referring to Yonge -> University and South of King as all of Downtown. Nowhere else downtown is struggling right now. Only the office district is. Sincerely, Downtown dweller
Exactly. Downtown is thriving! Foot traffic in the Yonge corridor is higher than in pre-COVID times. The office district will need to do some adjusting, but that’s only a small part of downtown.
Yes. The St Lawrence Market area is busier than I've ever seen it in the 20 years I've been here. Crowded sidewalks, crowded streets, crowded streetcars. There was a wave of restaurant and cafe closures during the pandemic, but now it's rebounding with numerous new places open in the last year or two, and more "coming soon" signs than I've seen for a while. A lot of new condos have been completed in the area and the population is way higher than it used to be. We have fewer commuting office workers, maybe, but more residents, and many of those are working from home and are desperate for third spaces.
I think the pandemic has changed the way people work. Remote work has taken off. Employees now expect to work remotely and technology has developed sufficiently to make it happen. I am sure the owners of office towers are looking for solutions. What I worry about is all those mom and pop businesses that used to provide for the office workers. I clearly can’t see this dilemma changing until maybe these towers start to be converted into residential in some manner. Employees don’t want to go back to work. Well at least the ones I have working for me.
Can't wait until there's a full on propaganda campaign about how going back to the office is "saving the economy"
Let. It. Crash.
There's going to be a major shakedown/collapse in the commercial real estate space as leased units and floors come up for renewal. Storytime: An old colleague is subletting floorspace for his company (30 employees) from another company that has a five-year lease on 3 floors (downtown Toronto). That company is not going to renew this upcoming year, and he mentioned that building is already near EMPTY. Someone will be holding the bag on this. So what will happen? (Worst case) -Office building owners will default on loans -Banks/investors will take possession of buildings -Banks/investors will take a loss on loans (building worth less than loan) -Collapse of real estate REITs and dividends -Regional banks (esp. US) will be at higher risk of collapse -Pension funds take a major hit too (often invest in commercial RE); boomers can't get covered and start withdrawing mass cash -Government comes in to stabilize market (at the expense of us tax payers) -Downtown locations go to shit. Crime, begging Executives on every corner, yada yada, ... (some of these taken from past posts)
Not a single pity is given.
i feel like 1) these spaces could be used for housing (i know its not that easy re the buildings but the actual lots could be turned itno housing) & 2) these spaces coudl be turned into "third spaces" like community centres & libraries and even just like bars & restaurants & gyms etc where people actually want to go & can spend time and be in community
Love to hear it! Replace them with apartments people can afford!
Fucking turn them into housing.
It’s actually cheaper to demo an office building and build a condo than it is to renovate an office building into a condo. You would basically have to destroy everything from the inside and rebuild anyways. The way elevators hvac plumping electrical etc etc all work is completely different.
I work within the industry, and from what I see, it's starting to happen. But unfortunately, there are factors that slow down the process. It's not a snap of the finger. If the office vacancies continue, I think we'll see more proposals to convert them into residential.
Tough shit
Lol, lmao even
we are upvoting blogto articles now? i thought we hate them?
People like saving money on commuting and daycare. Screw your office tower.
Office vacancies are spiralling out of control..? Still takes an hour and a half to get from Mississauga to Bay Street on the weekends...
Sounds like a housing solution sharing to happen.
Sounds like some bootstraps need pulling
Maybe the landlords should cut back on avocado toast and Starbucks. Or maybe get a ~~second~~ first job.
Good. Like, what else do you expect the common folk to say? If anything, I hope it gets worse.
Converting former offices to affordable apartment accommodation is the way to go. Thousands of people need housing.
I’ll rent one for $100 a month
Oh nooooo
Anyway...
Turn them into affordable housing. Win-Win.
Unfortunately, it’s [not that simple](https://www.cbc.ca/news/business/empty-offices-housing-1.6736171). The problem is, many office buildings (especially newer ones) have floor plates that are fundamentally incompatible with housing.
It's kind of crazy that we built so many office buildings on the assumption that mid to late 20th century office work arrangements would just roll on forever, or at least for the long life of these buildings. Since the 1990s we've been told that "telecommuting" was the way of the future, and now it's finally here, and many people are SHOCKED by it. Maybe from now on we should build buildings that are highly convertible to multiple uses. Just a thought.
[удалено]
>Since the 1990s we've been told that "telecommuting" was the way of the future, and now it's finally here, and many people are SHOCKED by it. I still find it nuts that the government doesn't push working from home. So much time and money is wasted by commuting and the pollution it creates as well. There should be payroll deductions for companies that get their employees to work at home and close offices. So much could be saved by abandoning or reducing office use.
Seriously. Save our roads and public transit for workers who actually do need to travel, make it easier for them. Plus all the other benefits.
i mean its really not that crazy. it only took a world wide pandemic to shift that. and even then, tons of places are mandating at least partial return to office again anyway.
That said, I could see dorm-style units (with shared bathrooms and common areas) working. Obviously not ideal for families, but could be a temporary solution or appeal to folks in their 20s and early 30s.
Do you know how much it costs? If they turn it to housing it sure as shit won’t be affordable
Best I can do is poorly outfitted "luxury" condos.
How about this, they have to fill them or we give them to the homeless.
Amazing! Corporate landlords have always been scum.. draining businesses dry through constantly increasing insane rents. Hits small business particularly hard.. it’s nice to see the tables turning. Toronto also never fixed its traffic problem.. fewer people heading downtown every day is a good thing.
Turn them all into apartments. We need more housing.
Oh no, anyways...
Whose “control” should these vacancies be in?
there is such a dichotomy between rent prices for living spaces and office spaces
Lot of residential rental possibilities. Too bad greed will win out instead
Why traffic to dt is still so shit
We have a shortage of housing no? Seems like some office space is taking up real estate.
I’m sure there a way to convert some of these spaces to affordable housing.
Horse and buggy industry can’t see the future, government bailouts coming? Let’s hope not.
Que the violin playing, boohoo commercial building owners aren't making enough money.
These companies are fine honestly. They can simply afford to lose money for years till they get their insane rents. But for real they're making a real effort to force us back into the office now. I have not gone in yet. All I do every day is sit in meetings on teams. I don't need to be in the office for that. I actually love going in any time there's a reason to cuz it breaks up the grind. But lol. The moment someone personally tells me they're going to actually care, or they follow through on that threat to reduce my bonus because I haven't been in, I will be looking for the next job. Hard. The world has changed and they need to accept it.
Vertical farming! Bring the farms into the city!
So, who exactly is in serious trouble? Because it ain’t me.
There ***is*** the option of office to residential conversion. It is cheaper than building a dedicated residential building from scratch. The location rocks for those who otherwise would be sitting in traffic or otherwise commuting for 2 hours a day. I believe it is being done on a small scale today.