Bay Street firms move to shrink their office footprints

TMX Group, Mercer Canada and a growing number of Bay Street firms are trying to shed some of their downtown Toronto office space, as the pandemic keeps staff working remotely and companies grapple with how they will work in the future.

It’s the acceleration of a trend that began last spring, when a number of tech companies, including Ritual Technologies, CrowdRiff and Rangle.io, were some of the first downtown Toronto tenants to put their space on the sublease market. Then came space from those in the hardest-hit sectors of travel, such as Air Canada.

Now, financial services firms are trying to shrink their footprint in the country’s financial capital. The steady flow of subleases hitting the market has driven downtown Toronto’s office vacancy rate to 7.2 per cent in the fourth quarter from 2 per cent prepandemic, according to CBRE data. (Subleases are included in the vacancy rate.)

“Sublease and vacancies in general will persist until a certain level or perceived perception of the ability to safely return to the office is achieved,” said Chris Fyvie, a Colliers International vice-president who has brokered leases in the downtown core for more than two decades.

Although Mr. Fyvie and other real estate experts say they believe the big downtown offices will rebound, the list of companies trying to sublease their space is growing. That includes TMX Group, which operates the Toronto Stock Exchange, the TSX Venture Exchange and the Montreal Exchange; British-based Finastra, which owns a widely used mortgage processing platform called Filogix; proxy adviser Kingsdale Advisors and Citco, a global financial services company with roots in the Eurobond market.

As well, Travelers Canada, an insurance company; Zafin, a global financial services firm, Ratehub.ca, a mortgage brokerage and financial product comparison site, Mercer, consultancy and asset manager, and Versapay, which provides financial services software, have also put office space on the sublease market.

So have smaller law firms and asset managers such as Gilbert Kirby Stringer, Burgundy Asset Management and Foyston Gordon & Payne Inc.

Not everyone is shrinking their space, of course. Companies that have done well in the pandemic, notably tech giants – Amazon.com Inc., Shopify Inc. and Google – continue to expand in downtown Toronto.

But as the pandemic extends to its 11th month and governments continue to tighten restrictions to slow the second wave of COVID-19 cases, companies are reckoning with the future of their office space.

Finastra, which has space in a prominent Bay Street tower, is rolling out a new office model for its 1,000 staff in response to employee feedback on working from home. It has consolidated multiple locations into one suburban Mississauga office, which has been renovated to add more collaboration rooms, gender-neutral washrooms, prayer rooms and wellness rooms.

“We’re moving to a flexible work model that allows employees to work two-plus days in the office and two-plus days from home‚ where roles permit,” said Siobhan Byron, Finastra’s senior vice-president. “At Finastra, we embraced the feedback our employees provided throughout the COVID-19 pandemic.”

TMX Group, which has several floors in the financial hub, said its intention is to gauge interest “for what would eventually constitute a small portion of our total space.”

“We continue to examine our options as we build a flexible back-to-work plan for all of our employees,” TMX spokesman Shane Quinn said.

Ratehub.ca, which like other mortgage experts has seen unprecedented demand because of record-low mortgage rates, said it had extra space prepandemic and is looking to see which companies would be interested in sharing its space. “We’re not planning on going full remote. Given the climate we wanted to explore our options,” said Ratehub spokeswoman Tara Bolger.

Zafin, which has an office in one of the older Bay Street towers, said it plans to get a smaller space at co-working provider WeWork. “We have been working from home since last March. We will continue to work from home across all global offices for another six months,” said its founder Al Karim Somji.

Going into the pandemic, downtown Toronto had an office vacancy rate below 3 per cent for years and the tightest office market across Canada and the U.S. That put the city in a stronger position to weather the economic fallout from the pandemic.

“Working from home is being looked at more closely than it was seven or eight months ago,” said Bill Argeropoulos, head of research with commercial real estate company Avison Young, adding that companies are not just shedding space for financial reasons but because they are incorporating remote work into their longer-term office plans.

Mr. Argeropoulos said the first wave of subleases was smaller spaces and now they are larger, which could eventually push rental rates down.

Travelers Canada said it is consolidating offices as part of a multiyear plan and not related to the pandemic.

Mercer, Kingsdale and Citco declined to comment. The others did not immediately respond to a request for comment.

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