By Tim Kiladze

Of late, downtown Toronto has felt a lot like New York City. In addition to the influx of celebrities for TIFF and Toronto’s growing reputation as a hub of pop culture, the amount of new tower construction near Union Station is reminiscent of the development boom in the Big Apple.
Being like New York is rarely a bad thing, but there are occurrences that make you hope Toronto has some distinct qualities. The recent financial meltdown is one of these instances; amidst the collapse of prominent financial institutions, the ailing U.S. financial sector may have rough ramifications for NYC’s commercial and residential real estate market. Not only will the recent mergers and buyouts ignite a consolidation of office space, but these events have also made it difficult for building owners to maintain their skyrocketing rents because of rising unemployment. While it’s unlikely that the Canadian banks will experience a similar fallout, that doesn’t mean Torontonians should feel immune: an American-led recession could have drastic implications on the Canadian economy and Toronto’s urban development.

To put this in perspective, downtown Toronto currently houses 60 million square feet of office space. While this number has remained relatively stable for quite some time, 3.8 million more square feet is under construction in the form of three new skyscrapers. The first of these is RBC Centre, situated at Wellington and Simcoe. Standing 43 floors high, the tower will be Royal Bank’s secondary home. Next, the new Telus Tower, on the corner of Bremner and York between the Rogers Centre and the ACC, is also in development. Finally, Bay Adelaide Centre, across from Scotia Plaza on the corner of Bay and Adelaide, will be the home of big name firms like KPMG, Faskens, and Goodmans.
Bay Adelaide Centre is a prime example of what a weakening economy can do to Toronto’s real estate market. Originally intended to rise during downtown’s building boom in the 1980s, construction on the tower commenced in 1990 but was soon halted because Ontario entered a deep recession. During this slowdown, office tower vacancy rates downtown soared to 20% (current rates sit around 4%, according to CB Richard Ellis’ second quarter report). After a few years passed, development plans eventually re-emerged but these too were kicked to the curb after the tech bubble popped. Finally, almost 15 years later, the Canadian economy picked up enough speed to support plans to construct the tower as it stands today.
Being optimistic, these problems may not re-emerge if Toronto is hit by a recession, and the looming downturn may never even come. In the event that it doesn’t, Toronto has much to be happy about: the new towers will generate a greater supply of office space and will also add new shimmering glass to the downtown skyline. More importantly, however, some of the construction might help to spur new downtown communities. Standing tall on the large area of land between Toronto’s two biggest entertainment venues, Telus Tower and its surrounding condo development has filled the vapid space that once detracted from downtown’s buzzing atmosphere. With some luck, these buildings will lay the groundwork for a burgeoning community with its own unique characteristics.
Still, the potential for a recession cannot be ignored. The current construction boom depends on expanding businesses to fill the new office spaces and to occupy the vacant areas left behind by firms moving from older buildings to the new skyscrapers. As it stands, the prospects for this boom aren’t promising—most companies are facing stagnant growth or are shrinking. Given this lackluster performance, let’s hope the cracks from New York’s potential real estate fallout don’t create fault lines that spread to Toronto. On top of the Canadian businesses that might downsize or close shop because of the tough economic environment, many New York-based firms have offices here that could be shut down. While 20% vacancy rates may not be reached this time around, either of these scenarios could result in a subdued downtown atmosphere and a large number of empty offices. For the developers’ sakes, let’s hope they factored an economic downturn into their break-even analyses. Downtown Toronto just might become home to a whole lot of barren concrete and glass.
Top photo by funinthegym from the Torontoist Flickr Pool.