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Toronto: The living geography lesson
City is one of the few in North America to embrace a model of growth through its commercial property base
TERRENCE BELFORD
Special to The Globe and Mail
October 16, 2007
Toronto, once a hodgepodge of islands of commercial activity kilometres apart, has joined other major North American centres in forging a new model for cities.
So far, it is the only urban centre in Canada with the promise of having a large, blended downtown where office towers, retail shops and residential towers extend for kilometres, sitting seamlessly cheek by jowl, real estate experts say.
"What you are seeing here is a new model for a North American city," says James McKellar, professor of real property at York University's Schulich School of Business. "It is a much more mature model, and Toronto is probably the only city in Canada that qualifies as such.
"Even more interesting, it wasn't insightful planning or enlightened politicians that are providing overall direction," he adds. "The new Toronto is the result of commercial forces. In fact, I think the politicians still don't get it, how the city has changed."
Changed indeed, says John Arnoldi, managing director of the Toronto region at real estate broker Colliers International. "Just 15 years ago we had a city where there were pockets of office space, pockets of retail and pockets of residential scattered about. Big employers were fleeing to the suburbs or thinking seriously about it because that is where the work force was.
"Now, you are looking at a city where commercial offices stretch from the lakeshore almost to Bloor Street, west to Bathurst and east to Parliament. About 30,000 people have moved back downtown into condominiums, and retail has followed them. There is a wonderful balance of residential, retail and commercial over a very wide area."
The forces driving this reshaping have also brought office tower development back to Toronto, adds Wayne Barwise, senior vice-president of office development for Cadillac Fairview Corp.
"For the first time in 30 or 40 years, we have major office developments taking place," he says, pointing to Cadillac's developments, including the RBC Centre with 1.2 million square feet of space, and Maple Leaf Square, which will add 250,000 square feet of office space along with retail, condos and a hotel.
Meanwhile, Menkes Developments Inc. has partnered with Telus Corp. to create a 750,000-square-foot tower and Brookfield Property Corp. is building the Bay Adelaide Centre, he adds.
The chief reason for the activity is rising commercial rents. They are predicted to increase at least 10 per cent this year and well into the foreseeable future.
The prospect of rising rents in the core has had a spinoff effect, says Michael Emory, president of Allied Properties REIT, the city's largest office space landlord, with a portfolio of 2.5 million square feet of renovated industrial space.
"Demand for office space has created a ready market for companies like ours," he says. "What you are now seeing are the value creators in the business acquiring older properties and renovating them to the east and west of the core. They know they can get rents to not only justify the renovations but to produce profits as well."
Understanding the forces that are reshaping Toronto starts with a history lesson, Prof. McKellar says. He points out that North America was blessed with three critical factors when it came to urban development: plenty of land, low gasoline prices and a decent infrastructure of roads. As a result, people could readily move to the suburbs to raise families.
But the equation began to change: Toronto, like most major U.S. centres, began to build up and not out.
Prof. McKellar's rule of thumb is that families spend 52 per cent of their incomes on housing and transportation between work and home. To maintain that balance, as gasoline prices rose, people began looking at shifting back into the city centre. At the same time, demographics were making a dramatic shift; the birth rate was falling, creating households consisting of couples and singles drawn to a more vibrant city life.
"That is why you will find that cities with the highest housing costs almost always have the best public transit systems," he says. "Because transportation costs are low, the housing part of the equation can rise."
Stir in 100,000 new immigrants streaming into the Greater Toronto Area every year, people from places where apartment living is the norm, and Toronto began to change dramatically.
"That influx of people living downtown had an enormous impact on employers," says John O'Toole, executive vice-president of CB Richard Ellis Ltd. "Employers, which had once looked at moving to the suburbs to be near the available work force, started to change their plans and look for large spaces downtown."
The lack of office space in the central core of Toronto, however, found them looking for space north of Queen Street and to the east and west of the core. That heady combination of a rising residential population coupled with an influx of office workers drew retailers like bees to honey.
And the office market is no longer confined to a few blocks around Bay Street - it now comprises several scores of blocks over a wide swath of the city. "We now have an office market all the way west to Liberty Village at Queen and Strachan streets and all the way east to the Distillery District at Parliament Street," Colliers' Mr. Arnoldi says.
What academics and industry leaders share is a deep concern for the future - but not for any slowing of development and growth.
"One major worry is that politicians are looking for ways to raise taxes without looking for ways to reduce spending and make municipal government more efficient," says William Strange, a professor of real estate and urban economics at the University of Toronto's Rotman School of Management.
"We have to change a system where it takes years to get development approval and then every decision immediately goes to the Ontario Municipal Board for even more years of review."
Tax policy is crucial to the future, Prof. McKellar adds. "This city continues to have the lowest residential taxes and highest commercial property taxes in Canada. While TTC ridership is rising, the transit commission is looking at cutting service and raising fares.
"The cost of bureaucracy and delays in approvals for projects is adding enormously to costs of new development, all of which will be passed back onto consumers.
"It is all at risk because the politicians just can't see the terrific changes that have been taking place."
City is one of the few in North America to embrace a model of growth through its commercial property base
TERRENCE BELFORD
Special to The Globe and Mail
October 16, 2007
Toronto, once a hodgepodge of islands of commercial activity kilometres apart, has joined other major North American centres in forging a new model for cities.
So far, it is the only urban centre in Canada with the promise of having a large, blended downtown where office towers, retail shops and residential towers extend for kilometres, sitting seamlessly cheek by jowl, real estate experts say.
"What you are seeing here is a new model for a North American city," says James McKellar, professor of real property at York University's Schulich School of Business. "It is a much more mature model, and Toronto is probably the only city in Canada that qualifies as such.
"Even more interesting, it wasn't insightful planning or enlightened politicians that are providing overall direction," he adds. "The new Toronto is the result of commercial forces. In fact, I think the politicians still don't get it, how the city has changed."
Changed indeed, says John Arnoldi, managing director of the Toronto region at real estate broker Colliers International. "Just 15 years ago we had a city where there were pockets of office space, pockets of retail and pockets of residential scattered about. Big employers were fleeing to the suburbs or thinking seriously about it because that is where the work force was.
"Now, you are looking at a city where commercial offices stretch from the lakeshore almost to Bloor Street, west to Bathurst and east to Parliament. About 30,000 people have moved back downtown into condominiums, and retail has followed them. There is a wonderful balance of residential, retail and commercial over a very wide area."
The forces driving this reshaping have also brought office tower development back to Toronto, adds Wayne Barwise, senior vice-president of office development for Cadillac Fairview Corp.
"For the first time in 30 or 40 years, we have major office developments taking place," he says, pointing to Cadillac's developments, including the RBC Centre with 1.2 million square feet of space, and Maple Leaf Square, which will add 250,000 square feet of office space along with retail, condos and a hotel.
Meanwhile, Menkes Developments Inc. has partnered with Telus Corp. to create a 750,000-square-foot tower and Brookfield Property Corp. is building the Bay Adelaide Centre, he adds.
The chief reason for the activity is rising commercial rents. They are predicted to increase at least 10 per cent this year and well into the foreseeable future.
The prospect of rising rents in the core has had a spinoff effect, says Michael Emory, president of Allied Properties REIT, the city's largest office space landlord, with a portfolio of 2.5 million square feet of renovated industrial space.
"Demand for office space has created a ready market for companies like ours," he says. "What you are now seeing are the value creators in the business acquiring older properties and renovating them to the east and west of the core. They know they can get rents to not only justify the renovations but to produce profits as well."
Understanding the forces that are reshaping Toronto starts with a history lesson, Prof. McKellar says. He points out that North America was blessed with three critical factors when it came to urban development: plenty of land, low gasoline prices and a decent infrastructure of roads. As a result, people could readily move to the suburbs to raise families.
But the equation began to change: Toronto, like most major U.S. centres, began to build up and not out.
Prof. McKellar's rule of thumb is that families spend 52 per cent of their incomes on housing and transportation between work and home. To maintain that balance, as gasoline prices rose, people began looking at shifting back into the city centre. At the same time, demographics were making a dramatic shift; the birth rate was falling, creating households consisting of couples and singles drawn to a more vibrant city life.
"That is why you will find that cities with the highest housing costs almost always have the best public transit systems," he says. "Because transportation costs are low, the housing part of the equation can rise."
Stir in 100,000 new immigrants streaming into the Greater Toronto Area every year, people from places where apartment living is the norm, and Toronto began to change dramatically.
"That influx of people living downtown had an enormous impact on employers," says John O'Toole, executive vice-president of CB Richard Ellis Ltd. "Employers, which had once looked at moving to the suburbs to be near the available work force, started to change their plans and look for large spaces downtown."
The lack of office space in the central core of Toronto, however, found them looking for space north of Queen Street and to the east and west of the core. That heady combination of a rising residential population coupled with an influx of office workers drew retailers like bees to honey.
And the office market is no longer confined to a few blocks around Bay Street - it now comprises several scores of blocks over a wide swath of the city. "We now have an office market all the way west to Liberty Village at Queen and Strachan streets and all the way east to the Distillery District at Parliament Street," Colliers' Mr. Arnoldi says.
What academics and industry leaders share is a deep concern for the future - but not for any slowing of development and growth.
"One major worry is that politicians are looking for ways to raise taxes without looking for ways to reduce spending and make municipal government more efficient," says William Strange, a professor of real estate and urban economics at the University of Toronto's Rotman School of Management.
"We have to change a system where it takes years to get development approval and then every decision immediately goes to the Ontario Municipal Board for even more years of review."
Tax policy is crucial to the future, Prof. McKellar adds. "This city continues to have the lowest residential taxes and highest commercial property taxes in Canada. While TTC ridership is rising, the transit commission is looking at cutting service and raising fares.
"The cost of bureaucracy and delays in approvals for projects is adding enormously to costs of new development, all of which will be passed back onto consumers.
"It is all at risk because the politicians just can't see the terrific changes that have been taking place."
