Defixturing is the new fixturing

The technology sector accounted for 38 per cent of Canadian office leases in the second quarter of 2015 and is having a major impact on the look and function of office space in Toronto. Until recently, the growing tech sector has pursued former industrial properties which had been transformed into Renovated and Converted (RC) office buildings. In Toronto, much of that demand has been satisfied by RC buildings in the Downtown West submarket. Given their popularity, it is no surprise that space in these buildings is becoming scarce and rents are beginning to rise.

Vacancy in Downtown West Class RC space hovers around 2.5 to 3.0 per cent and quoted gross rents in certain buildings are breaking $40 per square foot. With limited options available, a handful of tenants have begun constructing their own creative office space in more traditional office buildings. Tech tenants are taking space in Class A and B towers in the downtown core and are building out their interiors to replicate those of classic RC buildings. In much the same way that landlords adaptively reused former industrial properties into RC office buildings, tenants are now adaptively reusing traditional interiors into creative premises. These offices boast exposed ceilings, finished concrete floors, and, where possible, exposed brick or cinderblock walls.

The defixturing of traditional office space is fulfilling tenants’ aesthetic demands at rents comparable to those of the RC buildings they originally targeted. Traditional Class A and B buildings offer additional benefits including proximity to the Financial Core, access to the PATH, better transit options, and ample parking. Additionally, traditional office buildings have larger floor plates with layouts that adapt readily to efficient and creative spatial planning. Newer buildings also provide for more modern mechanical and electrical systems and better sound control.

The defixturing trend has even extended to some tenants in professional, scientific, and technical services as well as finance, insurance, and real estate industries. For example, advisory firm PwC has forgone drop ceilings in portions of its premises at 18 York Street and the Royal Bank of Canada has opted for exposed finishes at RBC Centre.

In response to the defixturing trend, a number of landlords of traditional office buildings are now catering to tenants’ demand for creative office space. For example, Crestpoint Real Estate Investment has long marketed its traditional, Class B building at 111 Peter Street as having the potential for an interior conversion. Similarly, Oxford Properties Group foresaw this trend a number of years ago, marketing its Class A renovation project at 111 Richmond Street West as having creative premises with exposed ceilings and concrete floors, ultimately landing Google as its lead tenant. The concept was so well-received that only one tenant requested a drop ceiling to be installed. Allied Properties REIT, the largest owner of RC space in Downtown West, is also catering to tenants looking for creative space in modern buildings by constructing 11 floors of new office space overtop its RC building at 134 Peter Street (QRC West).

Lease negotiations typically revolve around fixturing costs and construction incentives, but the possibility of defixturing traditional office space may provide the edge that landlords are looking for and tenants are demanding.

Office space can optimize the impact of non-profits

Office space can be a lever for impact and increased organizational capacity, according to a new Not-for-Profit Office Trends Survey completed by Colliers International’s Not-for-Profit Advisory Group. “Non-profits are perpetually trying to maximize the return on finite resources while delivering on their purpose,” says Matthew Johnson, vice president and co-chair of Colliers International Not-for-Profit Advisory Group. “As a result, they should utilize any advantage possible to increase their impact and capacity. Office space is typically an overlooked resource that may have a direct impact on successfully achieving this objective.”

The Trend Survey identifies Access, Identity, and Collaboration as the three space factors non-profits need to consider in their pursuit of maximizing capacity and optimizing impact. Access to public transit was identified as easily the most important factor by 42 per cent of the non-profits surveyed in choosing office space. A five minute walk to public transit was highly preferred and offers a tangible return on investment in both increasing work capacity and attracting and retaining employees.

Identity and the ability to use space to espouse an organization’s identity were not on non-profits radar. Non-profits ranked identity eighth out of a choice of 10 building attributes. “Space promotes your image,” adds Johnson. “Office space plays a critical role in telling the story of a non-profit organization and its cause. Common words used to describe their desired office space were ‘efficient’, ‘modest’, ‘professional’, ‘warm’, ‘inviting’, and ‘welcoming’. These adjectives illustrate the need for non-profits to diligently review if their space is proving their desired first and lasting impression.”

The Report showed that 66 per cent of non-profits desired more collaborative work spaces vs. just 26 per cent desiring an open work area. Collaborative work space can be identified as informal meeting areas and kitchens where employees can easily gather to prompt discussions and exchange ideas. These open, collaborative meeting areas result in functional, flexible and productive space.

Masha Dudelzak is a research manager at CBRE Limited.

134 Peter St. (QRC West), owned by Allied Properties REIT, is located in the heart of Toronto's Downtown West, and involved the restoration of two existing Class I buildings (134 Peter St. and 364 Richmond St. West) and the addition of a new, LEED-certified component for a combined GLA of nearly 350,000 square feet.

Defixturing -- Map
Source: CBRE
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