The Toronto office vacancy rate is notoriously one of the lowest in North America, making it one of the most challenging markets to break into.
Backed by CBRE’s recent $110 million investment, the Industrious real estate team negotiated their first international Canada deal to take over a WeWork space vacated during the pandemic — all while maintaining the landlord partnership agreement deal structure..
“Although we had interest from several providers, Industrious’ operating track record was best suited to provide quality flexible workspace that will be beneficial for the market and for our existing tenants,” said John Shields, Vice President of Leasing at Epic Investment Services, the developer behind 33 Bloor Street East.
Industrious Yonge & Bloor at 33 Bloor St. a 36,000-square-foot site that can accommodate 450 seats, plans to open in September in Toronto as part of a 10-year management agreement with Epic Investment Services. This new location allows Industrious to plant its first flag in Toronto, one of the top performing office markets in all of North America, and a market our existing network of enterprise members has been asking us to expand into for years.
“Canada has historically been a market that we have been looking to enter for a number of years, but we’ve found it difficult to get landlords to agree to partnership agreements that share the risk and reward,” said Sam Segal, Director of Real Estate at Industrious.
This deal will not only profit both parties, but it’s a marker for a changing landlord appetite in a post-covid environment where leases are not as risk-averse as they used to be.
Landlord appetite is changing
The mass exodus of tenants during the pandemic forced landlords to experience the worst case risk scenario when they thought they were protected by lease agreements. Traditional leases, it was assumed, were more predictable compared to a revenue-sharing deal. However many landlords realized that in many cases this truth didn’t hold up:
“We had a lease for 15 years that didn’t last for 15 years. Ultimately, we decided this made more sense because you don’t get guarantees regardless,” said Shields in an interview with CoStar, noting the revenue sharing nature of the agreement with Industrious has the advantage of significant upside. “We felt this would be the strongest partner with their introduction to Canada.”
A partnership agreement comes with a direct line to each member and a stake in the future revenue potential of the location. In addition, adding in flex office to a portfolio gives Class B buildings a necessary boost to compete in the modern post-covid office market.
Industrious aspirations for Canada/International
In markets that mirror the low Toronto office vacancy rate, landlords are slowly realizing the incredible building and earning potential of partnership agreements as Segal stated:
“Management agreements are the only way we have grown our business over the last five years, and a lot of ownership groups are willing to get more creative. We are definitely seeing this more and more across geographies.”
Toronto is just the beginning for Industrious Canada— more Toronto, Montreal, and Vancouver locations are currently in discussions as part of the next phase of international growth in North America and beyond.