The Toronto-Dominion Centre is undergoing a makeover, but there's more to it than renovated foyers and a spruced-up outdoor courtyard.
The real story is behind the walls of the iconic black towers, where owner Cadillac Fairview Corp. is investing in systems that will help to reduce energy consumption and operating costs - and make the six-building office complex in downtown Toronto more attractive to tenants.
Cadillac Fairview is typical of Toronto landlords who are investing in green retrofits, hoping that upgrades to older buildings will make them more competitive in a market where the office vacancy rate is rising and millions of square feet of newly constructed, LEED-certified space will be delivered over the next several months.
There is more retrofitting going on in Toronto than in other parts of Canada because of the huge amount of older office space that will open up as tenants jump from these buildings into five new towers going up in the downtown core, says Robert Armstrong, managing director of leasing services for commercial property broker Avison Young in Toronto.
Tenants are working with tight budgets and they're looking everywhere for savings. "What they're asking for right now is how to reduce costs, whether it's getting into a building that is more efficient than the one they're in, or how to make the space they're occupying more efficient," Mr. Armstrong says.
While the economy has put the kibosh on new commercial construction, the retrofitting trend is taking hold.
A report by Pike Research, a market research firm based in Colorado, predicts the retrofit market will experience strong growth through 2013 and beyond.
"Compared to conventional space, high-performance green building space is vacant less often," notes the report, called Energy Efficiency Retrofits for Commercial and Public Buildings. "Owners of empty commercial buildings are adopting green retrofits as a market differentiator."
Tenants are starting to pay more attention to such things as energy efficiency and certification in the Leadership in Energy and Environmental Design (LEED) green-building rating system when scouting for new premises, says Dermot Sweeny, principal of Sweeny Sterling Finlayson & Co. Architects in Toronto.
"I think we're seeing a tremendous change in how tenants are going to the market," Mr. Sweeny says. "As tenants become more sophisticated, the smart landlords out there are saying, 'We've got to be ahead of this curve.' When tenants walk in and say, 'What are you doing for the environment' or 'What are you doing to save me money, Mr. Landlord,' they can answer with seven or eight specific, highly desirable changes and retrofits they are doing to the building."
Steven Sorensen, vice-president and divisional manager for Cadillac Fairview's Toronto office portfolio, says the upgrades at the TD Centre - the buildings range in age from 18 to 42 years and provide office and retail space for 21,000 people - benefit the environment and will make the space more competitive.
"Most environmental initiatives are based on reducing utility consumption. It's to the mutual advantage of the tenant and the landlord because, if we can reduce our operating costs, we become more competitive and, hence, can attract more tenancy," Mr. Sorensen says.
Cadillac Fairview is spending more than $15-million on energy-efficiency initiatives such as re-commissioning all of the mechanical systems, Mr. Sorensen says.
Millions more are being spent on a new fibre-optic building automation control system that will improve the management of heating, ventilation and air-conditioning systems, he says.
This includes installing meters for each tenant so that they can monitor their own energy use. "We felt the most effective way to get [tenants] engaged is to give them the information to help them understand their consumption and usage patterns," Mr. Sorensen says.
Other improvements include outfitting washrooms with low-flush toilets and automated taps, and sourcing recycled paper products. Lighting will be put on auto sensors.
The TD Centre will eventually apply for a new LEED certification meant specifically for retrofits, Mr. Sorenson says. It's called the LEED Canada for Existing Buildings: Operations and Maintenance (LEED EBOM), and will be introduced this summer by the Vancouver-based Canada Green Building Council, which oversees the LEED program.
The new certification, already available in the United States, will give older, upgraded buildings the chance to tout LEED certification, a status until now largely awarded to new, energy-efficient buildings.
The TD Centre isn't the only downtown property that is now renovating, Mr. Armstrong says. Most of the major landlords are improving their properties as the market becomes more competitive.
Toronto's overall vacancy rate rose to 8.4 per cent during the second quarter of 2009, from 6.7 per cent for the same period last year, according to CB Richard Ellis. And the city will see about 3.9 million square feet of new office space hit the market as five office towers are completed over the next few months - the RBC Centre, the Telus Tower, the Bay-Adelaide Centre and Maple Leaf Square - as well as 18 York St., to be completed by 2012.
As they move into the new towers, tenants will leave behind about three million square feet of older space, Mr. Armstrong says.
Mr. Sweeny's firm worked on the RBC Centre, which will apply for LEED gold certification when it is completed this summer. He describes the project as an "epiphany" for the Toronto market because it's an example of how a powerful tenant went to the developer community with a very specific set of requirements for an energy-efficient building. It's a fairly rare example, he says, where "a tenant absolutely drives the result."
Mr. Armstrong says that, in the past six months, landlords have made more of an effort to help tenants find ways to cut costs and increase efficiencies.
This atmosphere of co-operation is quite refreshing, Mr. Armstrong says.
"Sure, there are negotiations, and you're always pushing and pulling to get the best deal, but landlords are definitely coming to the table to try and meet the needs of the tenants out there. It's actually a very good environment to work in right now."
© The Globe and Mail
