Ahead of final policy recommendations regarding the Office Replacement Bylaw to be considered by Toronto's Planning and Housing Committee in Q4, JLL Commercial Real Estate has released a study titled "Less Office, More Housing," which calls for a "full and unconditional repeal of the Office Replacement Bylaw to unleash supply."

In June, Planning and Housing considered the first of two staff reports on the ongoing Office Space Needs Study, meant to guide any Official Plan Amendments concerning the City's office replacement policies. The second and final of the two reports, containing final recommendations, will be considered by the Committee this quarter.

The Office Study was pursued by the City in the face of increasing office vacancies and a prolonged housing crisis — a combination of conditions that has led to "development applications that propose to add residential uses above existing office buildings, convert office to residential uses, or demolish office buildings entirely," according to the staff report.

By utilizing office market analysis, weighing the benefits and risks of office space conversion, and exploring policy options that balance office needs in the short- and long-term, the study aims to provide an informed and up-to-date view of the City's current housing and office needs.

Currently, Toronto's Official Plan includes stipulations that certain areas within the city, including specified Downtown and Midtown areas as well as offices within 500 metres of an existing or proposed subway, LRT, or GO train station, require the replacement of 100% of the office space that is proposed to be demolished or removed as part of a development application — the idea being to protect existing office space and maintain employment opportunities within the City.

But in the June report, it was recommended that, based on preliminary findings from the Office Study, areas with a 100% office replacement requirement have that requirement lowered to 25% to reflect current housing and office demand.

Now, JLL has a released a study that recommends that percentage be reduced to zero.

According to their findings, there are currently 73 parcels of land in Toronto where there is currently a redevelopment project proposed at the site of an existing office building, 51,398 proposed residential units exist on these sites, and 9.3 million sq. ft of lower-grade office space stand to be removed from the market if the projects were to go ahead.

"It is worth noting that this list is likely to grow over time," says the report. "As market conditions in the lower grade Class ‘B’ and ‘C’ segments of the office market continue to deteriorate as they are expected to, more developers will look to redevelop these functionally obsolete buildings into residential use if the zoning allows."

According to JLL's review of the Toronto’s zoning queues, over 51,000 new units could be realized over the next several years — units that might never be realized if the Office Replacement Bylaw isn't repealed. "This would make [repealing the bylaw] the city’s most impactful and scalable policy tool to unlock meaningful new supply," says the report.

JLL Commercial Real Estate

The study also points out that this policy change wouldn't cost taxpayers a dime, unlike office-to-residential conversion programs like the one in Calgary, which JLL estimates has cost Calgary taxpayers around $107 million and will lead to the creation of only 1,568 new units.

At the same time, the study found that a reduction in unwanted office space could reduce Toronto's office vacancy rate (currently at 18.1%) by 3-4% overall and support commercial property tax levy for the City, from which the City derives about 9% of its annual operating budget, as decreased office vacancy would boost property values and therefore tax assessment values. "Repealing the Office Replacement Bylaw is Toronto’s best option for supporting the office market, which will aid the city’s fiscal deficit," says the report.

JLL sees a full repeal of the Office Replacement Bylaw as a win-win at a time when the housing market is becoming critically undersupplied and the office market is critically oversupplied. "We strongly encourage the City of Toronto to repeal the Office Replacement Bylaw with no inclusionary zoning requirement. This represents the city’s most feasible path to stabilizing the housing market," they say.

In the coming months, the City will determine to what degree the Bylaw will be repealed, if at all. But in lieu of making any rash decisions, city staff are proposing that any policy revisions to the Official Plan undergo a four-year trial, after which, if any negative implications are felt, the City may revert back to the original 100% replacement requirement, or another specified amount.

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