Opportunity knocks in the downtown
Demand is expected to be strong for space Manulife will vacate in Kitchener’s core
KITCHENER — When Manulife Financial moved into Kitchener’s downtown nearly 20 years ago, the area was known for prostitution, crack cocaine, abandoned houses and empty storefronts.
The financial services giant eventually spent more than $17 million transforming the former King Centre — a failed retail mall with more than 300,000 square feet of space — into offices for 1,500 employees.
Now, as part of a move to cut costs, Manulife is pulling out of the downtown. In addition to cutting 700 jobs across the country through voluntary departures and attrition, it is consolidating its Canadian division headquarters, currently split between offices in the downtown and the north end of Waterloo, into one location at 500 King St. N. in Waterloo.
The company says it will take up to 18 months to complete the move and downsizing. It has not determined what it will do with the Kitchener building and the huge parking lot next to it.
It could retain ownership of the building at 25 Water St. and lease out the space. It could sell the building and land to institutional inves-
tors. It could proceed with plans for building a mixed-use development on a section of the parking lot that it unveiled in 2017.
It doesn’t really matter, say downtown watchers, because there is strong demand among technology companies for office space in the city core. The Manulife offices are in a building that stretches from King Street West, over Charles Street, all the way to a parking garage on Joseph Street. It is right on the light rail transit line.
“It creates opportunities,” says Peter Benninger, president of Coldwell Banker Peter Benninger Realty. “The difference is absolutely night and day from what is was five and 10 years ago, as far as real estate downtown and the values.”
After BlackBerry began imploding as its share of the smartphone market shrivelled, it sold all of its real estate holdings in Waterloo Region. Fears that so much commercial office space would depress the market for a decade proved unfounded. All but four of the former BlackBerry buildings have been bought and occupied by other companies big and small. BlackBerry, now focused on security software, leases three buildings in northeast Waterloo.
The Manulife office is big, at 355,000 square feet, but it amounts to a fraction of what BlackBerry dumped on the market all at once.
“I have a sense we will see a repeat of that with this property and building,” Benninger says, referring to the what happened with the BlackBerry real estate.
The reason for Benninger’s optimism? Downtown Kitchener is now a world-class technology hub that is home to Google’s Canadian engineering headquarters and a growing number of startups. In the past 18 years, five new condos, a School of Pharmacy, graduate School of Social Work, craft brewery, several restaurants and coffee shops, cinema, bike shop, yoga studio, two grocers and Themuseum opened in the city’s core. By the end of February 2019, the city expects to issue $1.2 billion in building permits for more than a dozen, multi-residential developments in the downtown.
The City of Kitchener jumpstarted the renaissance with carefully selected investments it started in 2005, which it hoped would spark a downtown revival.
The $500,000 it gave to Communitech turned out to be crucial to the downtown’s evolution as a technology cluster. Communitech, the organization that advocates for the region’s technology sector, used the money to move from the University of Waterloo’s research and technology park and into the Tannery building at Charles and Victoria streets in 2010.
E-learning company D2L (formerly Desire2Learn) and Google also moved into the city core. More than 60 startups, some with hundreds of employees, have set up offices in the downtown area after graduating from the tech incubators and accelerators in the Tannery building.
The old building, the biggest leather tannery in the British Empire at one time, is now a digital blast furnace for the 21st century economy. About 15,000 people a year travel from around the world to tour the Communitech Hub in the Tannery.
With all the momentum in downtown, Kitchener Mayor Berry Vrbanovic does not believe the Manulife offices will be vacant for long. “The downtown is very different today,” he says. “That space will get picked up by growing tech and innovation companies.”
Perimeter Development Corp. knows all about the demand for downtown office space. About four and a half years ago, it bought the office building at 305 King St. W. It spent a year renovating the interior, and now 98 per cent of the space in the 12storey, 120,000-square-foot building is leased.
Perimeter recently broke ground for a six-storey office building at 345 King St. W. It is the first office building to be constructed in the city’s core in more than a generation. National law firm Gowling will be the anchor tenant. Earlier this week, city councillors approved Perimeter’s plans for a 10-storey office building and parking garage on Breithaupt Street, directly across from the Google offices.
So there will be more office space to choose from in the future — new space that typically costs more and older space that is less expensive. Rates for office space in the downtown range from $10 to $28 per square foot, before taxes, utilities and maintenance costs.
“Some company that is early stage, being able to walk into some finished space would be very attractive,” says Craig Beattie, a partner at Perimeter.
“It’s no different than some of that old BlackBerry space up in the north end. Part of the appeal for some companies is that it was fit-up space they could get into fairly cost-effectively.”
The word “opportunity” is used a lot in conversations about the future of the Manulife offices.
“For growing tech companies coming out of the Hub or elsewhere, this is a perfect opportunity for them, and of course it is right on the LRT line and has the bonus of parking,” says Iain Klugman, chief executive officer of Communitech. “So we look at this as a tremendous opportunity. It is anything but a doom and gloom scenario. When you look at how fast that BlackBerry space was taken up, I am going to say: ‘This chunk of space in downtown Kitchener will get snapped up pretty quickly.’”
John Whitney, chief executive officer of longtime commercial realtor Whitney & Company, shares his optimism.
“I usually find with bad-news stories like Manulife moving out of downtown Kitchener, there are good stories that come out of that because space becomes available and it allows company to expand into an area where they could not have expanded before.”
The building’s assets include a huge parking lot immediately to the west and a big parking garage on the Joseph Street end of the property. It is one block from the Tannery building and right on the LRT line.
“It’s going to be an interesting opportunity I would say,” says Peter Whatmore, senior vicepresident, executive managing director and broker of the Southwestern Ontario area of commercial real estate firm CBRE.
“I would say, today with creative minds, anything is achievable. It is in the heart of the city, there is so much going on in the city.”