Brendan Sullivan is at the forefront of the Toronto office market’s renaissance.
As a senior vice president of office leasing at CBRE, he leads both the Toronto leasing group and the Canadian investor leasing platform, working with tenants and landlords to curate how people function in modern workspaces. In the new age of the office, considerations go far beyond square footage.
As he told Green Street News, “We’re going to have amazing office buildings that our parents would never recognize, or think were even possible for a work environment.”
Sullivan sat down to chat about renewed confidence in office leasing, the most in-demand amenities, and the buildings that are doing it right.
Return to office mandates have been a renewed topic of conversation lately, but they’re happening alongside the purported death of the office. What dynamics are you seeing on the ground in the leasing market?
I think that the headlines absolutely are playing into the death of the office narrative, but boots on the ground, I don’t think that is actually playing out.
There’s certainly demand in our market. It’s very focused in a narrow way on a subset of inventory. The tenant preferences have changed and continue to change. We’re going through a societal shift in how we use office space and how office space is delivered to tenants, to businesses and to the employees who occupy those buildings.
I think it’s a confluence of things happening at once that has caused that narrative. But I think that the reality is if you have well-positioned, amenity-rich, high-quality office space, demand has been quite strong for your product. It’s the B- and C-class product that is challenged. Buildings that are not well situated geographically to public transit are the ones that have felt the biggest challenge in the market today.
What types of deals are getting done amidst that societal shift?
Over the last four years, landlords have been in an environment where they have had to heavily compete with smaller tenancies – deals of 5,000, 10,000, 20,000 sq ft. Businesses were kicking the can down the road on their real estate decisions. We saw a lot of short-term renewals from larger block tenants.
But since the beginning of the summer, we’ve seen renewed confidence in office lease decision making. We are seeing more larger block tenants consider relocations and expansions than we have in the last four years. As we see more of those deals, demand will start to push outward to the periphery markets that naturally have been more challenged.
“There’s positivity around the reemergence of office and the importance that it plays in occupants’ day-to-day life”
It is a signal of confidence in office to the real estate community. We’re starting to see the importance of office to the business community reemerging. It’s not going to be a wholesale shift from some of the challenges that we’ve seen in the market, but we’re starting to see the green shoots of recovery. There’s positivity around the reemergence of office and the importance that it plays in occupants’ day-to-day life.
What reignited that confidence?
There’s a domino effect to an extent, but it’s really rooted in the demand of people to reconnect, to be together and to do so in environments that foster community, collaboration and accessibility.
It’s a slow recovery. We’re seeing things change daily, but this movement towards confidence is stronger than what we’ve experienced in the last four years.
What building attributes are attracting deals?
We talk a lot about flight to quality. But it’s not just flight to quality, it’s also about flight to experience.
Tenants are very focused on amenity rich offerings for their employees. Employees are demanding a unique set of experiences from their employer and the buildings that they occupy. When we look at projects that have been successful, they have had a significant focus on food and beverage, amenity lounges, breakout spaces and transit accessibility. And those that don’t have transit accessibility work to deliver specific solutions, like dedicated shuttle services to and from their office to public transit hubs.
“It’s not just flight to quality, it’s also about flight to experience”
There’s also a demand for built-out space that’s playing out real time in front of us. Landlords today have to deliver furnished, built-out space to generate significant absorption. Roughly 85% of all transactions that we tracked last year were done in built-out spaces. The trend for landlords to invest in their vacancy to align with that tenant demand is certainly significant today, more so than it was even five years ago.
It’s really critical for landlords to understand not only what the desire of the tenant is, but what are they actually going to use in their experience within a building. It’s great to build bike storage and to have that amenity checked off your list, but the reality is that it may be very seldom used. There is that consideration of how to deploy capital into an amenity package to not only deliver what a tenant wants but what they need.
What is something that has proven to be both a want and a need for tenants?
I think right now tenants are gravitating towards buildings that provide unique experiences. When we look at the U.S. market, we’re finding that buildings that look at their common areas as amenities and curate experiences in those spaces are demonstrating strong results from a demand perspective.
The trend towards hospitality in property management is real. We see it play out in many of the global markets. We’re now starting to see the beginnings of that in Toronto, and that’s delivering services in an experience that would be akin to a high-end hotel. Highly trained building staff focused on the experiences of the occupants and visitors to the building, how restaurants can use common area space to activate the building and provide an amenity to the tenant.
“The buildings that understand that demand for experience and deliver it will be the ones that are really the first to benefit from the increasing demand that we’ll see over the next three to five years”
When you look at a building like 134 Peter Street and how they partnered with Ricarda’s, their food and beverage partner that’s on the ground floor, the restaurant has transitioned their office lobby into one of the highest demanded event spaces in the city. We’re going to see more of this over the next 10 years. The buildings that understand that demand for experience and deliver it will be the ones that are really the first to benefit from the increasing demand that we’ll see over the next three to five years.
What’s an example of a building that has, amenity-wise, pivoted well for tenants?
121 King Street West. That’s a project that we listed for Crestpoint [Real Estate Investments]. It’s a real success story, and a signal to the market on what well-positioned, amenity-rich buildings are able to achieve with a creative landlord who understands what tenants want and are investing in their building to deliver it.
There’s an amenity lounge on the 22nd floor with an outdoor patio that’s over 10,000 sq ft. It has breakout spaces for small to large meetings. It has a golf simulator and arcade, a bar and coffee nook. The building has been rebranded as Roserock Place and a large rock feature has been constructed as part of the lobby experience. Several of the common areas are being curated to generate activity for the tenants, so they have an outlet to execute their work but also to build relationships and have connections within the building community.
To that point, Crestpoint has hired a community manager to ensure that tenants engage in the buildings’ experiences and all it has to offer. It’s a real success story and is evidence enough that office isn’t done.
Scotia Plaza and 145 King Street West, and others, are also creating unique offerings to support tenant experience.
How do you find tenants for those B- and C-class buildings?
Well, it is a little more challenging for sure. Tenants obviously are not one size fits all. The decision-making processes they go through to determine their office needs are all different with different drivers.
Although B- and C-Class markets aren’t as active or they don’t demonstrate the same level of demand as a building situated in the Toronto financial core, there are still users that are seeking that type of product. So, it’s really about aligning the tenant need with the ability of the landlord and the asset to deliver it.
The highest-quality buildings focusing on tenant experience are the first to feel that positive shift.
Keeping the focus on those more challenged assets, the city is considering removing the office replacement policy. Do you think that would be a positive or negative for the office market?
I think that for the city and for developers, it’s a very smart direction to go in. We have office product that is in near record high vacancy levels. To require developers to replace vacant office with vacant office, that is a challenge. It removes the opportunity to add more housing. It doesn’t move us closer to solving a really critical issue, which is our housing shortage. I would be supportive of legislation that eases or removes the requirement for replacement of office.
“I would be supportive of legislation that eases or removes the requirement for replacement of office”
There are several buildings in our city that have likely become obsolete when you talk about what the evolved demand of tenants is today. I question the roadblocks that face the landlords and developers’ ability to take an obsolete product and to transition it into a product that’s desperately needed by the residents of our city. An empty office building serves no purpose to solving our housing crisis. I think that the two are symbiotic in the opportunity that we have to solve the issue.
We need to recognize the change that’s necessary, and I’m confident in our government and our private sector, specifically our real estate industry, to be able to come together to articulate a solution and to execute it.
What are some predictions you have for the office market over the next two to five years?
When we look at financial core office, the best quality, best situated buildings are at a single-digit vacancy. So, my expectation is that through the end of this year and into ’26, we’ll see a strengthening office market in the financial core. That will then result in the periphery markets, like the greater core, downtown west and downtown east, strengthening in terms of demand and ultimately absorption.
I think that the highest-quality buildings will be the first to feel that positive shift and that tenants in the periphery markets will continue to seek out high-quality, amenity-rich office buildings that curate unique experiences for their employees.
The buildings that aren’t moving to deliver what tenants are looking for will be the ones that continue to struggle over the short to medium term. It’s not just a flight to quality, it’s now a flight to experience as well.
