Jury Out on Suburban Centres Versus Office Parks

The jury (and billions worth of investment) are still out when it comes to whether strategically located suburban office parks or suburban downtowns will be the preferred location for major office tenants in future years.

Those conflicting views were on display at the closing roundtable of last week’s Land & Development conference in Toronto.

Lisa Lafave, Senior Portfolio Manager for Real Estate with HOOPP (Healthcare of Ontario Pension Plan), is heavily invested figuratively and literally in the office park model. HOOPP owns about 600,000 sq. ft. at the Airport Corporate Centre in Mississauga and has recently purchased another 33 acres to building another 1.3 million sq. ft. and owns another one million sq. ft. of space Burnaby.

Those huge holdings give HOOPP area dominance, Lafave explained. “We pick our spots, dominate and then you have the pick of the list of the tenants.”

HOOPP’s strategy is perhaps best illustrated by its AeroCentre V building in Mississauga, Ont. which got off to a less-than auspicious start. “The day that we announced was the day after New York gave its news of the financial crisis” in 2008, she said. “Fortunately the intensification worked out and we have PepsiCo and Target in those buildings.” In fact, those two anchor tenants signing in the teeth of the recession underestimated how much space they needed and “they are already asking for more space.”

Asked about Mississauga’s ambitious plans for the revitalization of its city centre as a destination for new office development, Lafave had a short answer. “Not going to happen. It is just not an office node.

“The Airport Corporate Centre, obviously I’m biased, but I think that is going to have its day in the sun now and I think that is where office users want to be. Close to the highways, close to the airport, we are building amenities that will come with the office,” she said. “Office users don’t want to be beside a big regional shopping mall. You see that again with Scarborough Town Centre as well. You have a choice of a couple of restaurants and a food court and you are always struggling for parking.”

The Other View from First Capital

The HOOPP world view was disputed by Gord Driedger, Senior Vice-President for Central Canada with First Capital Realty Inc., who pointed to the blooming of residential development in Toronto’s downtown as proof that people want to live close to where they work, a trend that could also support suburb city core development.

“In the Mississauga City Centre or Scarborough Town, it might possibly be a situation where companies start to say `Wouldn’t it be nice if my hundreds of people who are going to come to work every day, don’t have to drive downtown and they live in Scarborough town or Mississauga City Centre.’ It is that demand that will fuel the demand for office and companies thinking about their employees which I think they tend to do more and more.”

Driedger also disputed the idea that the idea of being located next to a shopping centre is a bad thing. “The airport campus is a lovely campus and the buildings are very attractive but if you want the higher order retail or the higher order restaurants, something other than lunch, you have to get in your car in drive. I think there is more hope for those suburban city centres than that.”

Real Mixed Use From First Capital

With the call for urban intensification from municipalities and less opportunities for development of centres in suburban locales, First Capital has “doubled down on focus of the urban markets of Calgary, Vancouver, Montreal (and) Toronto,” said Driedger. “What does that mean? Partnerships with residential developers, partnerships with office developers so that we can get legitimate, true, sincere mixed use developers.”

He provided the example of the company’s purchase last fall of the Hazelton Lanes shopping centre in Toronto’s tony Yorkville neighbourhood as one of the first examples of successful mixed use development. “It is making sure that they actually work together. The retail feeds off the residential and the office feeds off the parking and the public uses that are in the building.”

Will LEED’s Lead in Green Hold?

Panelists agreed that new buildings will be constructed to ever greener standards – First Capital’s Driedger went so far as to say LEED will eventually become a standard. “I believe that in very shortage order it won’t be a choice. It will be baked into building codes and municipal bylaws.”

Mark Reeve, a Partner of Urban Capital Property Group, whose company is working on a LEED Gold building, was less enthusiastic about LEED’s green building dominance. “I’m not a huge fan of LEED only because I just think that it is a lot of money for consultants to tell you what you already know. There are other standards which people are starting to talk about and I just don’t know if LEED is the benchmark or metric that we should be using going forward.”

Rates Have Only One Way to Go

A real estate conference would not be complete without some discussion of interest rates and this one was no exception. The panelists agreed that rates will rise (sometime). They can hardly fall further.

HOOPP’s Lafave, as befitting an investor with a 20-year time horizon, did not see rising rates as an unfortunate event. “It will take out the steam of the market and I don’t think that is a bad thing actually because it is very hard to make numbers work today as a long-term investor and particularly on development these days. So I think interest rates rising is actually a good thing for our business but obviously not to the point of stagflation. It takes a lot of the levered buyers out of the market which makes it more disciplined to my mind.”


Paul is a writer, editor and media trainer based in Toronto with over 25 years of experience as a business reporter. He has written for Canada’s major news services on…

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Paul is a writer, editor and media trainer based in Toronto with over 25 years of experience as a business reporter. He has written for Canada’s major news services on…

Read more





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