Toronto’s Office Landlord Cartel

Bay-Adelaide Centre
New AAA Office Product Being Added to the Stock

In Greater Toronto Area a hand-full of landlords control the majority of leased office buildings. The twenty-five largest landlords (by square footage of office space managed) in the Toronto office market have more than half, 54% of the office space in the competitive market under management. The same statistic for A Class office space shows an even greater concentration of properties managed: 62% of existing inventory twenty-five largest landlords of A Class in Toronto office markets.*

However, if you want to be in the best office space in the Toronto Financial Core, which is graded as AAA Class, also known as Bank Towers, there are only 5 landlords: Brookfield, Cadillac Fairview, Oxford, GWL Realty Advisors and Dundee REIT.

Brookfield owns the larger of the two office towers at Brookfield Place (formerly called BCE Place), First Canadian Place, and Bay-Adelaide Centre. Some commercial real estate industry experts consider Bay-Adelaide Centre located at 333 Bay Street to be AAA Class office product due to its size, location, quality of tenancy and rents being commanded, though it is not one of the office developments in Downtown Toronto customarily grouped in with the Bank Towers.

Cadillac Fairview, which is controlled by Ontario Teachers’ Pension Fund, owns the TD Centre that is recognizable as the black towers centrally located within the Toronto Financial Core having the office building addresses on Bay Street, King Street West, Wellington Street West and York Street.

Dundee REIT bought Scotia Plaza from the Bank of Nova Scotia last year. This will be interesting to see how a real estate investment trust will manage a Triple-A Class office asset. Due to the structure of a real estate investment trust, maintaining stabilized net cash flow of an investment is paramount. That could conflict with the objectives that a Bank Tower landlord which would take a different approach of asset management. Historicaly a AAA landlord might be a sacrifice of short-term NOI in order to achieve longer term development objectives – reputation of superior management and tenant service being the primary goal. It will be interesting to see how Dundee REIT will rise to meet the challenges of owning AAA Class office space in Toronto.

Oxford owns Royal Bank Plaza at 200 Bay Street, which is made up of two AAA Class office towers. They own Richmond Adelaide Centre that is considered to be A Class but have recently completed renovations to those office buildings that have increased their value. The newest office tower Oxford is developing at 100 Adelaide Street West, by all accounts, is touted as being the latest addition of Triple-A Class office product to Toronto’s Downtown office market.

GWL Realty Advisors is the landlord for Commerce Court. The largest of the Commerce Court Towers, Commerce Court East, is a Bank Tower in Toronto’s Financial Core, though the other buildings within the complex would not be considered representative of AAA Class grade of office product.

Even though there is a concentration of ownership and control of the office space in Toronto, there is still a competitive environment in the GTA office leasing market and landlords of all classes of office space understand the importance of keeping vacancy within their buildings to a minimum. In today’s real estate capital markets, the cost of acquiring an office asset, relative to the income on the property means that the last remaining vacancy in a property that is otherwise well-leased represents the owners profit margin.

*Source of data: Atlus Group

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